"The best way to destroy the capitalist system is to debauch the currency." -- Vladimir Lenin

"What people do not understand is that the boom is the disease and the bust the cure.  Everything the government does is designed to prop the disease and prevent the cure." -- Ludwig VonMises (The Forgotten Depression)

"By nature, man hates change; seldom will he quit his old home until it has actually fallen around his ears." -- Thomas Carlyle (19th century philosopher & author)

"We are not going back to barter. We are going forward into barter. We are feeling our way along, developing a new science." -- Carl Rhodehamel

CRITICAL TIDBITS

◄$$$ STANDARD & POORS LISTED THEIR TOP CONCERNS FOR YEAR 2010. THESE ARE ITEMS FOR CONTINUATION OF THE CRISIS. $$$

In order of priority, Standard & Poors is concerned about:

1. Yet Another Jobless USEconomic Recovery

2. Scheduled Expiration of Bush Administration Tax Cuts in 2011

3. Withdrawal of Unprecedented Government Support From The US Banking Sector

4. A Major Correction in Asset Markets

5. A Disorderly Decline in the Value of the USDollar

6. A Major US Corporation's Short-Order Return to Bankruptcy

7. Continued Low US Business Confidence

8. Commercial Mortgage Backed Securities

9. An Escalation of Federal & Federal Reserve Bailout Activity

10. Unforeseen and Unintended Consequences of New Financial Regulation

◄$$$ GLASS STEAGALL TO MAKE A COMEBACK POSSIBLY, WHICH WOULD FORCE THE BREAKUP OF DEAD CONGLOMERATE GIANTS. A BACKDOOR ASSAULT ON THE FINANCIAL SECTOR IS UNDERWAY. THE MOVEMENT HAS YET TO FACE SYNDICATE COUNTER-ATTACK. $$$

A short proposal is gaining traction in the USCongress that could return Wall Street to the 1990 decade structurally. It would force the breakup of banks, beginning with Citigroup. Legislators are eager to prevent future financial crises, as they wrestle publicly with the 'Too Big To Fail' concept. They are turning to a powerful simple angle that would force a transformation. Perhaps the representatives react to public anger over banker bailouts and bonuses. The transforming leverage would come to a partial re-imposition of the 1933 Glass-Steagall Act that separated commercial and investment banking, along with brokerage firms. Passage of the insanely reckless Gramm Leach Bliley Act of 1999 dismantled the walls of separation that worked for 60 years. The consequence was precisely the same type of systemic breakdown as occurred during the Great Depression, only more powerfully so. A proposal bill would prevent depository banks from underwriting financial securities, or engaging in proprietary trading, or selling insurance, or owning retail brokerages. Furthermore, the bill could also force the reversal of merger deals during the financial crisis, such as Bank of America acquiring Merrill Lynch. The drafted bill appears to be an end run around opposition, designed to undercut the giant insolvent firms that walk and operate like zombies still threatening to ruin the system.

Former Fed Governor Lyle Gramley put it well when he said, "Congress is at war with Wall Street. They perceive Wall Street as being the root source of our financial crisis, and they want to do something to make sure that does not happen again." Forcing a breakup of banking functions, economic operations separated from risk-laden securities and trading activities was proposed made earlier this year by the Group of Thirty. This non-profit organization was comprised of former USGovt officials and major bankers including Paul Volcker. He sits currently as head of the president's Economic Recovery Advisory Board. Volcker said, "[The financial system has] failed the test of the marketplace. It has been proven that [the big financial firms] are unmanageable in the existing conglomerates." Their proposal had been brushed aside until recently, when sponsors picked it up and ran with it. See the Bloomberg article (CLICK HERE). The USCongress seems helpless and feeble, while committee heads are in Wall Street's pocket.

In my view, an interesting and intriguing angle in unfolding from which to attack Wall Street banks in foundation structure. The big fat cat bankers might have a very difficult time stopping something as common sense as this. They are already lobbying that if Glass-Steagall had been in place, the credit crisis and banker bust would not have been averted. The truth to such a claim lies only in that entire subsidiaries of big Wall Street banks would have died quickly along with the insurance giant AIG, and Fannie Mae would have still required nationalization to avert its implosion and fraud discovery. The Glass-Steagall was installed to prevent system failure and banking system insolvency from spreading to the rest of the financial industries. That is precisely what we have today, a system failure and defunct financial industry from coast to coast, top to bottom, in all chambers. My guess is if the proposal is passed as legislation, it will be given a two-year phase-in, which will be enough time to gut the entire initiative. A year or so later, the bankers can water it down into worthless dictum after important bribes well placed with Congressional committee heads beholden to Goldman Sachs. If you the reader does not believe GSax has control of such committee heads, you are sadly mistaken and incredibly naive.

◄$$$ THE CRISIS IS JUST BEGINNING, ACCORDING TO SIMON JOHNSON. THE PREMIER BANK FOR INTL SETTLEMENTS IS MOTIVATED TO TAKE ACTION AGAINST THE BIGGEST BANKS. THESE US BRAND ZOMBIES ARE A MENACE TO THE ENTIRE FINANCIAL SYSTEM. $$$

Simon Johnson formerly served as economic counselor and director of research at the Intl Monetary Fund from March 2007 to August 2008. He notes that BIS officials at a recent meeting discussed the breakup of the so-called 'Too Big to Fail' banks. These giants are taking on more risk as official reckless solutions heap on even more debt, but with still insolvent financial firms. See the YouTube video (CLICK HERE).

◄$$$ JIM RICKARDS IS A BRILLIANT ANALYST. HE DESCRIBES WELL THE CURRENT LANDSCAPE, AND PATH TOWARD A USDOLLAR COLLAPSE. HE POINTS TO INCOMPETENCE AND LOST MONETARY CONTROL. $$$

Jim Rickards is senior managing director for market intelligence at Omnis. He talked about what the USGovt should be doing. Rickards harbors no hope of leaders doing the right thing, thereby dragging out a miserable degradation for many years. He expects eventually a USDollar collapse will come. He ascribes no bad motives, just incompetence to Bernanke, Geithner, and other bank leaders. He estimates gold to be worth between $4000 and $11,000 per ounce, calculated from the proportion of monopoly money that has been printed (implicit demand) and the amount of available gold for sale above the ground (direct supply). See the King World News broadcast (CLICK HERE).

◄$$$ FOOD CRISIS NEXT YEAR COULD BECOME A CENTRAL ISSUE. THE TOPIC IS GAINING ATTENTION. WATCH PRICES AND FOREIGN GOVERNMENT RESPONSES TO PAY THE HIGHER COSTS. $$$

Eric deCarbonnel lays out a very credible outlook and forecast for a food crisis in year 2010. He believes the ongoing damaged and rotting credit market will be exacerbated by the food crisis. Bad weather last summer coupled with interrupted credit and general supply chain problems resulted in severe reduction in crop output. The USGovt added confusion in its usual manner with a steady stream of ridiculous absurd crop forecasts based nowhere in reality. The USDept Agriculture has attempted to keep supply & demand in balance by means of grotesque entries in official contrived data. The USDA estimates make no sense against a backdrop of central US production region disaster zones declared by the USGovt itself, both presidential and secretarial. Eric deC provides a stream of anecdotal evidence to dispute the high USDA crop output estimates in convincing style. He has argued in the past that foreign governments will potentially sell USTreasury Bonds held in reserve in order to pay for the rising costs of imported food. The United States produces 60% of the global food supply. California produces 80% of the US food supply. See the Market Oracle article entitled "Global Food Crisis 2010 Means Financial Armageddon" (CLICK HERE).

◄$$$ THE FRAUD OF THE GREEN REVOLUTION SLOWLY IS REVEALED. IN GREAT BRITAIN, A VAST GULF HAS OPENED BETWEEN BOAST AND REALITY ON A SHOWCASE PROJECT. GREEN POWER OUTPUT IS TINY, AND JOBS TO BRITAIN ARE EXPORTED TO FOREIGN SOURCES. THE GREEN LOBBY IS IN CONTROL, A PARALLEL TO THE CRIMINAL BANKERS. $$$

The UK Telegraph broke the story (CLICK HERE). This is highly embarrassing to the climate change movement and Prime Minister Gordon Brown. The true price of the climate warming folly is becoming clear, especially with countless cities across the northern hemisphere reporting record low temperatures.

"From the Met Office's mistakes to Gordon Brown's wind farms, the cost of 'Green' policies is growing. Impeccable was the timing of that announcement that directors of the Met Office were last year given pay rises of up to 33%, putting its £200k per year chief executive into a higher pay bracket than the Prime Minister. As Britain shivered through Arctic cold and its heaviest snowfalls for decades, our global warming obsessed Government machine was caught out in all directions. For a start, we saw Met Office spokesmen trying to explain why it had got its seasonal forecasts hopelessly wrong for three cold winters and three cool summers in a row...

With the leasing out of sites for nine giant offshore wind farms, there was Gordon Brown's equally timely relaunch of his £100 billion Green Revolution, designed in compliance with EU targets, to meet one third of Britain's electricity needs. This coincided with windless days when Ofgem was showing that our 2300 existing turbines were providing barely 1/200th of our power. In fact, 80% of the electricity we used last week came either from coal fired power stations, six of which are before long to be closed under an EU anti-pollution directive, or from gas, of which we only have less than two weeks stored supply and 80% of which we will soon have to import on a fast rising world market. In every way, Mr Brown's boast was fantasy. There is no way we could hope to install two giant £4 million offshore turbines every day between now and 2020, let alone that they could meet more than a fraction of our electricity needs. But the cost of whatever does get built will be paid by all of us through our already soaring electricity bills, which a new study last week predicted will quadruple during this decade to an average of £5000 a year. This would drive well over half the households in Britain into fuel poverty, defined as those forced to spend more than 10% of their income on energy.

Finally, following Mr Brown's earlier boast that his 'Green Revolution' will create 400,000 green jobs, there was the revelation that more than 90% of the £2 billion cost of Britain's largest offshore wind farm project to date, the Thames Array, will go to companies abroad, because Britain has virtually no manufacturing capacity. At last, in all directions, we are beginning to see the terrifying cost of the obsession with global warming and green energy, which for nearly 20 years has had all our main political parties in its grip. For years governments, including the EU, have been shoveling millions of pounds into the coffers of green lobby groups, such as Friends of the Earth and the WWF, allowing them in return virtually to dictate our energy policy. Not for nothing is a former head of WWF-UK now chairman of the Met Office. The bills for such follies are coming in thick and fast. Last winter's abnormal cold pushed Britain's death rate up to 40,000 above the average, more than the 35,000 deaths across Europe that warmists love to attribute to the heatwave of 2003. Heaven knows what this winter will bring. And remember that the cost of the Climate Change Act alone has been estimated by our Climate Change Secretary Ed Miliband at £18 billion every year until 2050, a law that only three MPs in this Rotten Parliament dared oppose. Truly have they all gone off their heads."

◄$$$ CHEMTRAILS ARE A TOPIC OF CONCERN FOR MANY PEOPLE. SOMETHING STRANGE IS CLEARLY GOING ON. WHETHER SINISTER OR NOT, THIS STORY IS NOT CLEAR. THE PATTERNS ARE TOO ELABORATE TO BE RANDOM. $$$

A documentary produced by chemtrail researcher Clifford Carnicom is a must see and an excellent research tool. Over five years of work has provided ample evidence in his 90 minute DVD that covers many of its facets. Over the years aerosol & chemtrail research has provided some leads but even more questions as to who and why the spraying occurs. It is clear jets are deliberately spraying the skies, difficult to look upon as random. The effect on exposure risks is not certain. Much speculation has to do with interfered satellite communications, like for foreign eavesdropping. One HTL subscriber is an avid observer over the western skies of North Carolina, a main area of frequent ornate patterns. See the Google video (CLICK HERE).

◄$$$ THE STORY OF FAKE TUNGSTEN GOLD BARS HAS DISPERSED GLOBALLY. THE ARTICLE IN THE PAKISTAN DAILY SERVES AS AN EXCELLENT SUMMARY, AND TIES IN AN OBSCURE EVENT IN 2004 WITH POSSIBLE CONNECTION TO REMOVE NYMEX RECORDS. THE SYNDICATE MIGHT HAVE COVERED ITS TRACKS. $$$

An obscure news item originally published in the New York Post, written by Jennifer Anderson in late January 2004. It perhaps makes more sense in a fresh read. The article read as follows: "District Attorney investigating NYMEX executive in Manhattan, New York  February 2, 2004... A top executive at the New York Mercantile Exchange is being investigated by the Manhattan district attorney. Sources close to the exchange said that Stuart Smith, senior vice president of operations at the exchange, was served with a search warrant by the district attorney's office last week. Details of the investigation have not been disclosed, but a NYMEX spokeswoman said it was unrelated to any of the exchange markets. She declined to comment further other than to say that charges had not been brought. A spokeswoman for the Manhattan district attorney office also declined comment."

The Pakistan Daily article surmises that the offices of the Senior VP of Operations at the NYMEX is exactly where one would go to find the records, such as serial number and smelter of origin, for every gold bar ever physically delivered on the exchange. This is a legal requirement. These precise records would show the lineage of all the physical gold settled on the exchange, sufficient to prove that the amount of fake gold bars in question could not have possibly come from the regular volume of US mining operations. The volume of fake gold bars, possibly to replace a significant portion of Fort Knox, would overwhelm any industrial mining volume. The magnitude coming from US smelters (for illicit fake tungsten with gold plate fabrication) would undoubtedly be vastly bigger than domestic mine production. Such would be a smoking gun, prima facie evidence of criminal activity. By the way, Stuart Smith has disappeared, vanished, gone from the face of the earth. After his offices were raided, he took administrative leave from the NYMEX and faded into the woodwork. The media & press had no follow-up story. The District Attorney Morgenthau had no further indictments or investigation after execution of the search warrant. My guess is that Stuart Smith joined Jimmy Hoffa and Lee Harvey Oswald and the CFO of Freddie Mac, six feet under. See the Pakistan Daily article entitled "Fake Gold Bars in Bank of England & Fort Knox" dated in January 2010 (CLICK HERE).

STATES, MILITARY & CONSTITUTION

◄$$$ CALIFORNIA DEFAULT POTENTIAL GROWS, OTHER STATES TOO. INDIVIDUAL STATES CANNOT DECLARE BANKRUPTY BY LAW, BUT MUST DEFAULT ON DEBT AND FORCE LOSSES ONTO BOND HOLDERS. THE MOST IMPORTANT AND LARGEST STATE IN THE UNION SERVES AS A MICROCOSM. CALIFORNIA DEVOLVES INTO A FAILED STATE. PREPARE FOR MORE I.O.U. COUPONS, AND MAYBE FOR EXTREME MEASURES IN RESPONSE TO FEDERAL REJECTIONS FOR AID. $$$

The California deterioration continues. Bill Watkins heads the Center for Economic Research & Forecasting at California Lutheran University. He urges that the State to begin emergency discussions with both the Obama Admin and the US Federal Reserve in the increasingly likelihood of a state default. These discussions are already taking place! The principal reason that California is not currently in default is that some banks continue to honor the IOU coupons issued on four separate occasions. If events develop whereby the State IOU coupons are rejected by banks and the Obama Admin refuses to provide emergency bailout funds, then the state will have no choice but to default in a public spectacle. Under federal bankruptcy law, states cannot declare bankruptcy. If unable to balance their budgets, their only option is default. A list of nearly 20 states including Illinois, California, and New York face imminent threats of default. The situation finally has warranted discussions with the USGovt. Some form of official state bailout is highly likely, but consequences are grave. Over the holidays at the end of December, the USGovt virtually accepted the USAgency Mortgage Bond liabilities, rolling them into guaranteed unlimited status. If certain state debt is also rolled into the USGovt liability, the global credit market globally must adjust. Serious doubts would be raised by foreigners about the creditworthiness of US sovereign debt itself. The blank check to F&F might have been to avert the latest Minsky Moment, a moment that drags on. See the Marko Stake article (CLICK HERE).

Governor Schwarzenegger girds for a massive deficit battle in Sacramento as borrowing costs soar and deficits continue to stream in. The Governator has dug in his heels, unwilling to raise taxes further, while opportunities to cut spending remain very limited. He has amplified an appeal for federal aid with regular meetings. If he only realized that the controllers of federal money with the USDept Treasury and USCongress were puppets of Wall Street devoted almost entirely to directing slush funds to the big banks!! Marilyn Cohen heads the Envision Capital Mgmt firm in Los Angeles. She said, "With a $21 billion deficit forecast over the next 18 months, the governor of the most populous US state has said he will not boost taxes again, leaving him reliant on spending cuts and federal help to balance the books. This is much worse than anyone thinks. I have no confidence in the state legislature." The Envision Capital firm manages $250 million, which will exit all California debt investments. California Controller John Chiang has consistently held a firm grip on reality. He said "We are looking at numbers that are going to be incredibly staggering to resolve." See the Bloomberg article (CLICK HERE) or the Business Week article (CLICK HERE).

Hopes in California are fading fast for federal help in closing a projected $19.9 billion deficit. Schwarzenegger seeks $6.9 billion in federal assistance to narrow the deficit. Its borrowing costs have risen 24% since September. The implicit rejection by the Obama Admin came from David Axelrod, senior adviser to the president. He said, "We recognize they have enormous problems. But we cannot solve all of those problems from Washington." True! While 99% of their efforts, funds, and devotion have been to Wall Street and the Pentagon. Investors are openly worried that California will repeat last year's pathway during a fiscal crisis that forced it to issue IOU coupons for bill payments. The Golden State bears the lowest debt rating in the Union, further marred by the debt rating cut on Wednesday by Standard & Poors. The plea for help to California, the world's eighth-largest economy, may become a test case for Obama. Many states follow in their insolvent path toward default. See the Bloomberg artic le (CLICK HERE). If the states sense USGovt executive dedication to the Wall Street & Pentagon syndicate, they might begin to opt to print money. Imagine the Golden Bear Dollar. Tenth Amendment movements toward independence would become supercharged by California announcing valid recognized legal tender in newly minted dollars that circulate into their economy.

◄$$$ CITY BUDGET SHORTFALLS ARE RACKING UP HUGE NUMBERS, IN AN UNPRECEDENTED FASHION. THEIR DEFICITS ARE APART FROM STATES. THE INSOLVENCY OF THE UNION IS TOTAL, FROM TOP FEDERALLY TO BOTTOM WITH CITIES AND HOUSEHOLDS. $$$

Shortfalls for US city budgets could reach $56 billion over the next two years, and $83 billion through 2012, on an aggregate basis. City level recessions are not expected to bottom out until 2011. That is highly optimistic, since the National League of Cities relies upon their economic recovery forecasts to lag national ones by about two years. City leaders will proceed in the usual manner to kill off their economies in response. They will deal with revenue declines and spending pressures with higher service fees, layoffs, unpaid furloughs, drawing on reserves, and canceling infrastructure projects. States pile on the pain with threats to cut direct aid transfers. State capitals must contend with their other escalating budget shortfalls. California, for example, has reversed aid it had already granted to cities. States have cut aid to cities by 9% in 2003 and 2004 in response to the 2001 recession. The same league said. "In comparison, the current recession is by nearly all measures more severe than the 2001 recession, suggesting that state cuts in transfers will, if anything, be more severe as well. We urge federal action that would create jobs. Inaction at the federal level could worsen the already difficult situation facing cities and the country." A 10% aid cut per year from 2010 to 2012 will reduce revenues to cities by $21 billion in total. States and cities are each putting much more pressure for more federal aid. The wretched economic conditions, sometimes called the Second Great Depression, have led to state cutbacks in spending, raised taxes, and ripple effects to local governments. The states must cope with $193 billion of combined budget deficits in the current fiscal year, according to a Center on Budget and Policy Priorities report issued last month. Budget gaps have ruptured in 31 states since fiscal year 2010 began. See the Reuters article (CLICK HERE).

◄$$$ VERMONT MAKES GRUMBLING MOVES TO SECEDE FROM THE NATION. IT IS NOT ALONE, AS TEXAS AND OTHERS HAVE TAKEN SIMILAR STEPS. THE MOVEMENT IS GAINING MOMENTUM BUT NOT TRACTION. $$$

An entire slate of candidates is seeking state office in Vermont, with one distinction in common. The entire slate wishes for Vermont to secede and break off from the Union. Peter Garritano leads the slate, as he pursues the lieutenant governor post. He thinks it is high time for Vermont to call it quits with America. In my view, the empire is about to implode and tiny Vermont wishes to embark on its own independent path as a separate republic. They call the voting day Vermont Independence Day. Garritano s aid, "The only hope is to just say, 'Look, this is not working for us. We want to start fresh again, with a real democracy.' I think that is the answer. Hopefully, it will not take another horrible economic breakdown to realize that the people running things do not look out for the little guy, or us, or the soldiers. It is all about profit and getting the last drops of oil on earth and trampling people's rights."

This noble cause is not new, only the latest episode. Texas, Hawaii, New Hampshire, and Alaska all have taken steps toward secession, a certain daunting procedure. However, a distinction is engrained in the independent spirited Vermont. It is the first time since the Civil War that a secession movement has fielded an organized slate of candidates for statewide office. Individual pro-secession candidates have clearly run before in many instances. Few political experts give them much hope of winning, although they will make a lot of noise and receive a lot of attention.

◄$$$ CHALLENGES TO THE USFED CONTINUE, SURE TO RESULT IN A CONSTITUTIONAL CHALLENGE. AUDITS WOULD PROBABLY REVEAL VAST SYNDICATE BEHAVIOR, PROCESS OF COUNTERFEIT BONDS, MONEY LAUNDERING FROM NARCOTICS FUNDS, PRELIMINARY ACTIONS BEFORE 911 EVENT PLANNING, AND MAYBE COVERUPS FOR TUNGSTEN GOLD. OBJECTIONS BY FED GOVERNORS ARE PURE MISDIRECTION. $$$

For a good review and update of the challenge, Tyler Durden provides a rather full picture of the current developments. The latest is some misdirection by Fed Governor Jeffrey Lacker, who incorrectly refers to the Ron Paul demands for disclosure as he promises more mutually assured destruction. Every few months the defense of the USFed comes with false preaching, misrepresentation of the Congressional inititiave toward disclosure, and the promise of financial ruin if the banking oligarchs are exposed for their dirty scummy corrupt dealings. The elite bankers steadily receive gigantic welfare funds from the USGovt with minimal scrutiny. Their books are not properly disclosed, since off balance sheet activity (pure Enron methods continue) remains hidden, even though they are publicly traded firms. The arrogance of the bankers is stifling, as they pretend to know best always, surely better than unwashed peasants. Well, the masses are watching a syndicate walk, swim, and quack like a syndicate, complete with unspeakable fraud, tight control of government financial ministries, and zero prosecution. The USFed is scared witless, since in no way can it cover its tracks over 20 years of criminal activity. A legal challenge comes that could reach climax. See the Zero Hedge article in update (CLICK HERE).

◄$$$ DEFENSE SPENDING IN THE UNITED STATES IS UP SHARPLY SINCE 2000, AS THE WAR ECONOMY CRIPPLED THE NATION AND CONTRIBUTED TOWARD ITS DEEP BROAD INSOLVENCY. $$$

USMiliatry defense spending since fiscal 2000 has grown 43%, adjusted for inflation. When actual costs to prosecute the war are included, the defense spending has increased by 72%. Defense Secy Gates apparently has never encountered a weapons program he dislikes. He has directed the USAir Force to restore the proposed budget for three major programs offered for cancelation, including a Boeing program to build and install upgraded software in the cockpits of C-130 transports, according to a budget document. Gates directed restoration of $285 million in 2011 and $1.843 billion overall through 2015 on the C-130 program. He also told the Air Force to restore $2.4 billion for an Internet radio that Lockheed Martin is building for aircraft and vessels. In addition, he ordered the addition of $280 million to continue installing upgraded Pratt & Whitney engines on the Northrop Grumman Jstars surveillance plane. Loren Thompson is a defense analyst for the Lexington Institute, defense research organization. Thompson said, "Either the service budget priorities are out of synch with those of the defense secretary, or the proposed cancelations were advanced knowing there was little likelihood they would be accepted." War is the most important and profitable business to the multi-winged syndicate in power.

◄$$$ THE USMILITARY HAS A UNIQUE KNACK TO ENRAGE ITS CREDITORS, WHO ACTUALLY FINANCE AGGRESSIVE ACTIONS AGAINST THE CREDITOR NATIONS. THE TRADE WAR WITH CHINA HAS TURNED FROM COMMERCE TO FINANCIAL. NEXT IT MIGHT TURN MILITARY. $$$

The United States has cleared a sale of advanced Patriot air defense missiles to Taiwan, despite opposition and warnings from Beijing. This bold action invites a response from Beijing. They have many options at their disposal. China could retaliate by sanctioning related US firms, or suspending bilateral military exchanges, or dumping USGovt debt. They might simply purchase a mountain of gold bullion, or an actual mountain containing gold ore. Given the growing friction and contentious attitudes, it is unlikely that Chinese officials will look past the incident in order to maintain relations. It is not a good relationship any longer. China might respond with an announcement of its own on the military front. They might lock in a giant contract for an aircraft carrier naval group purchase from Japanese or Korean shipbuilders and weapons manufacturers, complete with Stealth F-22 aircraft sold for nearly nothing to Japan. Just pure Jackass speculation without further basis.

◄$$$ U.S. SUPREME COURT APPROVES 'ENEMY COMBATANTS' STATUS WITH NO LEGAL STANDING IN DUE PROCESS. THIS SERVES AS A KEY PLANK OF A FASCIST DICTATORSHIP STATE, ABSENT ANY REMOTE SIGN OF A REPUBLIC IN LEGAL STRUCTURE. HABEAS CORPUS IS DEAD, AS IS DUE PROCESS. THE HIGH COURT DISMISSED THE ALIEN TORT STATUTE AND THE GENEVA CONVENTIONS. NOWHERE IS STRICT GUIDANCE OR DEFINITION FOR ACCUSED PERSON BEING AN ENEMY OF THE STATE. $$$

After hearing passionate arguments from the Obama Admin, the US Supreme Court bent to the president's request. In a one line ruling not consistent with the importance of the gesture, the high court let stand a lower court decision that declared torture an ordinary, expected consequence of military detention. Worse and more alarming, the court introduced a shocking new precedent for all future courts to follow. The high court declared anyone who is arbitrarily declared a 'Suspected Enemy Combatant' by the executive authorities in a general sense will cease to exist as a legal entity. The person will have no inherent rights, no legal standing whatsoever, except perhaps a modicum of process arbitrarily granted. With key portions of the US Patriot Act due to expire December 31, the Obama Admin used the contentious health care debate as political cover, as he quietly maneuvered for renewal of the controversial provisions. By the way, Obama opposed all such elimination of due process for people as a senator. This is again change we can believe in. See the Chris Floyd article (CLICK HERE). See also the Black Listed News article (CLICK HERE). This is 1984!!

The Constitution is clear that no person can be held without due process, and no person can be subjected to cruel and unusual punishment. And the US law on torture of any kind is crystal clear. It is forbidden, categorically, even in time of national emergency. The instigation of torture is a capital crime under US law. No person can be tortured, at any time, for any reason. The death penalty usually applies. No immunities exist whatsoever for torture offered anywhere in the law. President Obama is unendingly described as a brilliant Constitutional lawyer. So the US Constitution is a dead shredded ignored piece of paper. The United States is no longer a republic by any reasonable criterion. Seeing this pattern established in 2006, the Jackass moved to Costa Rica. See the Baltimore Chronicle article (CLICK HERE).

◄$$$ ACCUSATIONS COME OF THE C.I.A. DISPATCHING BLACKWATER MURDER SQUADS TO 'WORK' IN GERMANY, WHICH IS ABUZZ IN THE REVELATIONS. THE CONTROLLED PRESS IN THE UNITED STATES MENTIONS NOT A WORD. $$$

A scandal brews in Germany. Coming to the surface is an allegation of a clear pattern of the United States security agencies conducting clandestine rendition and assassination operations within the borders of allied countries. Again, Blackwater is at the center of the accusations. In November, an Italian judge convicted 23 US intelligence operatives in the 2003 abduction of an Egyptian imam from a Milan street as part of a CIA extraordinary rendition operation. Osama Moustafa Hassan Nasr, aka Abu Omar, was taken to Egypt, where he claims he was repeatedly tortured. See The Nation article (CLICK HERE). Recall that Blackwater has been often accused of murder missions in Iraq, even random joy rides at night killing civilians for sport. These are criminal syndicate resembling any other organized crime syndicate, with murder, drugs, counterfeit, but not gambling or prostitution.

◄$$$ INTERPOL IN THE UNITED STATES HAS BEEN GIVEN FREEDOM FROM AMERICAN LAW, A FORMAL IMMUNITY. IT CAN AVOID ANY CLAIMS FOR DISCOVERY BY COURTS, AND DENY INFORMATION ON DEMANDS. THIS IS A HIGHLY CURIOUS MOVE THAT GOES TOTALLY WITHOUT EXPLANATION. CONTRAST TO ANOTHER DEVELOPMENT THAT MIGHT PUT THE UNITED STATES UNDER INTERNATIONAL COURT JURISDICTION ON MATTERS LIKE WAR CRIMES. $$$

Two lines of thought prevail. One claims boldly that Interpol can arrive in New York City and WashingtonDC to make arrests of syndicate members. The protective shields used by the criminals might be removed. The order by Obama was courageous. The other line of thought claims that the United States has morphed into just another nation, one where law enforcement can remain hidden within a new layer. The main syndicate players might only dance in circles with the new cops on US soil. Motive and purpose remain unclear and unspecified. To be sure, tremendous uncertainty lies with the news of Interpol immunity. On December 16th the Obama Admin granted Interpol, the international police force based in Europe, immunity from American law. Not much of any explanation was provided on their activities or powers. Political experts are deeply curious why this administration, which is notoriously indifferent to American sovereignty, suddenly decided Interpol should be freed from the US Constitution and other American law. Clearly, Interpol had not made demands for immunity, nor had Interpol officials lodged complaints that American law was interfering with its operations. See the National Review article (CLICK HERE) or the Washington Examiner article (CLICK HERE) or its follow-up article (CLICK HERE).

Reports are scattered and not yet widely confirmed that in the second week of December, a planeload of Interpol and British Secret Service agents arrived on US soil for special projects that remain undisclosed. No news release appears on their arrival. Rumors swirl that they are prepared to cover some key Wall Street criminal funds, to force the relinquishment of certain accounts held with firm grip by the USDept Treasury for over a decade, maybe to maybe arrests. Remember previous mention in the Hat Trick Letter reports. Last August 2009 two to three dozen Wall Street and Treasury mid-level employees turned state evidence in return for European Union asylum. It was granted. The Brussels Serious Fraud Squad has run with the evidence, complete with documents, emails, testimony, and more. The Interpol actions could mean follow-up, a long awaited course of action toward prosecution for trillion$ frauds. There are several in the United States of such magnitude.

Back in November, President Obama dispatched a delegation to The Hague in The Netherlands to explore issues involving the possible participation by the United States in the International Criminal Court. Analysts charge it could be used to prosecute Americans under international legal standards for actions that are not crimes under US law. The USDept State confirmed the delegation of members from its department as well as the USDept Defense were included. In official circles, the USGovt and USMilitary harbor deep concerns over how aggression is defined internationally, even how torture is distinguished from interrogation. Take note of the seizure and annexation of Iraq and the attack and commandeering of the narcotics industry in Afghanistan. See the World Net Daily article (CLICK HERE).

◄$$$ INTERNET CONTROL CONTINUALLY LIES IN THE BALANCE. THE FEDERAL COMMUNICATIONS COMMISSION SEEMINGLY CONDUCTS REGULAR MEETINGS TO CRAFT INTERNET GUIDELINES AND RULES. THE PLAN SEEMS TO BE TO CATCH THE PUBLIC OFF GUARD, AT WHICH TIME THE INTERNET WILL COME UNDER THE CONTROL OF LARGE CORPORATIONS SUCH AS THE TELEPHONE OR MEDIA FIRMS. $$$

The Huffington Post alerts Americans to the quest to control the Internet. Powerful forces relentlessly attempt to gain control and to subjugate the people, in a battle of attrition. The Internet remains in my view the last bastion of independent freedom in two important aspects. People can start businesses on it, apart from the corporate grid. People can access alternative news from it, apart from the news network grid.

The Huffington Post wrote, "Millions of Americans do not know that a battle over the future of the Internet is being played out right now in Washington. How it ends will have deep repercussions for decades to come. On one side are public interest and consumer groups, small businesses, Internet entrepreneurs, librarians, civil libertarians, and civil rights groups who want to preserve the Internet as it is, the last remaining open communications platform where anyone with access and a computer can create and consume online content... The principle of 'Network Neutrality' is what makes this open communications possible. Net Neutrality is what allows us to go wherever we want online. Our relationship with the phone and cable companies stops when we pay for our Internet service. These companies cannot block, control, or interfere with what we search for or create online, nor can they prioritize some content over others.

On the other side are the Internet service providers, who want to dismantle Net Neutrality. Not only do they want to provide Internet service, but they want to be able to charge users to prioritize their content, effectively giving themselves the ability to choose which content on the Web loads fast, slow or not at all. The film student, the small entrepreneur, and the independent journalist will be lost in the ether, unable to compete with other, more established companies who can pay for a spot in the fast lane. Gone is the level playing field. Gone is the multitude of voices on the Web. Gone is the Internet as we know it, unless we act now. The Federal Communications Commission is crafting new Net Neutrality rules right now. The public has until Thursday [January 14th] at midnight to tell the FCC what we value about the Internet, and why we want the agency to create a strong Net Neutrality rule to protect it." See the Huffington Post article (CLICK HERE).

Trace Mayer is a Constitutional lawyer, a gold analyst, and a well informed person about network technology and the Internet. In response to my query, he said, "I was actually at a board meeting last week with a country that is pretty influential on this topic with several of the most respected thought leaders, who were also at our meeting. For example, the head of the FCC uses their chart that explains what 'Net Neutrality' is. There is a lot of confusion and misinformation on the subject. While well meaning, she actually misunderstands some of the basic issues. Of course, I think this is a result of Google's actions. Anyway, I think some of the rules that are coming out are actually going to be pretty helpful. Sure, I would prefer the government not be involved at all, but it is what it is. There is too much money flowing through the Internet now. A lot of the entrenched interests have a bias for keeping it free and open like it is." Mayer gave a note of optimism.

My simplistic view is that commerce uses the Internet to underpin an entire layer of information like with customer service and supply chain data important for operations. That must remain intact, since it is not threatening to the media powers. They might pursue a tax on supply chain processes though. The real battle is over news information, analyst essays, newsletter access, political debate, angry public response to government policy, and much more that directly addresses the entire criticism and response to the organized system. The Internet provides the opportunity for dissent, as well as for newly hatched private businesses. What we are witnessing is a key Orwellian battle with enormous consequences for continued freedoms, in an era where freedoms and rights are almost uniformly being removed, discarded, and replaced by a police state in support of vast syndicates.

A battle is being waged here and now with Google over the internet. The story is more complicated than described in the press. It does not pertain to Net Neutrality as much as copyright protection, competition, and perhaps internet trolling for data. It does not pertain to ethics either. Google has threatened to exit the entire Chinese market. They explain the risk of losing their source code in a land replete with copyright infringement. Business reasons and possibly espionage reasons are the most reasonable explanation. Google has superior software and a solid business plan, one that threatens to dominate Baidu, its main Chinese competitor. The Chinese Govt might want Google out by making it difficult for them to operate. They might have some preliminary evidence that Google is facilitating US intelligence spying and wanting them out for that reason. Google might be capable of gathering information about improper access of data over the internet by Chinese companies and the government. At a basic foundation level in the conflict, China is flooded with pirated software, music, books, movies, and video games. China is the world's most flagrant copyright violator. Chinese firms routinely raid USMilitary websites and in the past have obtained weapon systems schematics (see Sandia Labs). Google might be able to monitor current such illicit downloads. Google might fear exploitation by competitor Baidu for its source code. Google might choose to exit China rather than risk their source code, and even risk mentioning the pervasive intellectual property theft within China. If espionage or internet snatch monitor is the real reason, be sure that other less controversial justification will be publicized.

AIRPORT LUNACY & CONTRACT DEALS

◄$$$ YEMEN HAS TURNED STRATEGIC, AS THE US WAR MACHINE HAS RATCHED UP PRELIMINARY RHETORIC. NOT ONLY DOES IT CONTAIN LARGE OIL DEPOSITS YET TO BE EXPLOITED, BUT IT SITS IN A HIGHLY STRATEGIC LOCATION. $$$

Some Yemeni stories center on pirates, along those from Somalia. The US-based story centers upon the airline passenger with a bomb in his underwear. The man arrested is from Yemen, which is the first thread to pull. The smell of a phony story is ripe from two angles. A hidden agenda is at work in my view. Yemen represents a strategic MidEast oil transit chokepoint. It lies at the northern mouth of the Red Sea passageway. It borders Saudi Arabia to the north and Oman to the east. Some Senators are barking about the need for attacks on Yemen on the basis of national security. The bigger reasons might pertain to control of strategic passageways for oil shipment and for actual oil deposit development. It appears the USMilitary machine is about to sink its tentacles deeper around the oily parts of Middle East. See the Global Research article by William Engdahl (CLICK HERE).

Independent Senator Lieberman from Connecticut urges the United States to act pre-emptively in Yemen. He is a renowned hawk in support of the invasion of Iraq. He has warned that the US faced extreme danger unless it acts to curb the rise of terrorism in Yemen. He calls Yemen tomorrow's war. He heads the Senate Committee on Homeland Security. He made his remarks just days after a Umar Farouk Abdulmutallab, a Nigerian with apparent ties to terrorist networks in Yemen, failed in his attempt to blow up a jet aircraft above Detroit Michigan. The USMilitary base at Guantanimo Cuba still holds 90 prisoners from Yemen, a point of contention regarding Geneva Convention compliance for treatment, and continued perceived threats of US attacks. The rhetoric has amplified and been revived considerably for action against terrorism. See the Huffington Post article (CLICK HERE). My sources indicate that the Nigerian in custody had a few accomplices still protected by the USGovt. My guess is the CIA hired Abdulmutallab, with full expectation of his failure, just like the goony mission of the shoe bomber Padilla years ago. It all smells of orchestrated missions to breathe new life in the war machine.

◄$$$ NEXT CONSIDER THE SALE OF AIRPORT SCANNERS. THEY NOT ONLY ENRICH CHERTOFF, BUT THEY EXPOSE PEOPLE TO EXCESSIVE X-RAYS. THE SYNDICATE HAS FOUND WAYS TO FORCE RENEWED ORDER FLOW, A PARALLEL TO THE MILITARY SPENDING. $$$

Mother Jones makes the accusation. They put it succinctly when they said, "The body scanner is sure to get a go-ahead because of the illustrious personages hawking them. Chief among them is former DHS secretary Michael Chertoff, who now heads the Chertoff Group, which represents one of the leading manufacturers of whole body imaging machines, Rapiscan Systems." Is that a takeoff of the name Rape Scan or Rapid Scan? When will the American people wake up and speak up to blatant pandering and profiteering? See the article (CLICK HERE).

◄$$$ AIRPORT SECURITY SEEMS TO CAUSE ESCALATING HYSTERIA. $$$

Airport security in the United States has turned bizarre. The procedures have gone from strange and restrictive to absurd and more restrictive. More seriously, airport scanners expose people to dangerous levels of x-rays. People passing through airport security are to be exposed to much higher levels than in a dentist or doctor office, where a lead blanket is common used for personal protection from radiation. The US air traffic security response has been to ban powdered makeup for women. Huh? Maybe they should ban the usage of underwear on passengers, since after all the prospective bomber had the device hidden in his skivvies. Many people might have dangerous devices in their undies!! The following has absolutely nothing to do with airport security, but it sure might someday. We all need a laugh sometime.

VIRUS PROJECT FACES SCRUTINY

◄$$$ THE SWINE FLU MACHINE PROCEEDS QUIETLY BUT INEXORABLY. BIG PHARMA PROFITS ARE A MAJOR OBJECTIVE. NOVARTIS BUILDS A PLANT IN NORTH CAROLINA TO CONTINUE THE GENOCIDE PLAN CLOSE TO HOME. $$$

The USGovt has fanned the fears, funded the bioweapon programs, forfeited control to the World Health Org (WHO), removed Big Pharma legal liability from legal statutes, constructed a network of FEMA camps, and ordered a few million plastic coffins. The large pharmaceutical firms have cooperated with the Center for Disease Control, other national disease agencies, and most importantly the USArmy Bioweapons Lab in Fort Dietrich Maryland. Never forget that 30 advanced microbiologists have been murdered, committed suicide, or otherwise died under mysterious circumstances since 2003. They all had one common trait, working for the USGovt on a secret project, as reported by their friends and families. Harken back to old syndicate manuals that advise on killing the engineers, since they know too much.

Big Pharma has profited already in the billion$ off Swine Flu fears and propaganda. Now the USGovt has contributed to help the Swiss drugmaker Novartis open a new vaccine plant in North Carolina. The contributions total $700 million to aid Novartis in the construction of a new drug factory, with $220 million given three years ago, and $486 million given this year. In return, the USGovt wins the right to purchase the deadly Swine Flu vaccine for 17 years, which in my view will result in perhaps millions of deaths. Worse still, the plant will regress and use less reliable industrial processes. These vaccines will be created using a new and unproven biotech method that relies on dog kidneys instead of chicken eggs.

Doctors decry the methods used. The plant currently employs 191 people making an average of $50k per year. They expect to ultimately employ 350 people when the North Carolina plant is fully operational in 2013. A report at World Net Daily claims at least three of the top flu experts at the WHO have financial ties to vaccine makers. Business Week recently published a story on how Big Pharma firms profit from Swine Flu. The Big Pharma profits so far are enormous, almost as big as the death count. See $1.7 billion for GlaxoSmithKline, $700 million for Novartis, $500 million for Sanofi-Aventis. Those figures are for 4Q2009 alone. Analysts expect similar profits for 1Q2010 as the needless needles pump deadly vaccines and active viruses into the people. Further motive is evident, as patents on prescription drugs worth a combined $135 billion in annual sales are soon to expire, with no new blockbuster pharma products ready to replace them.

We can expect another phony Swine Flu scare any moment, for profit motives. The last scare arrived shortly after the most recent chapter of Tea Parties, one might recall. In fact, after those Tea Parties (focus on large government) the World Health Organization declared a Swine Flu epidemic in the United States, despite the fact that Swine Flu deaths were a fraction of even garden variety influenza deaths. The first important episode arrived after the first Tea Party in April (focus on taxes), which coincided with the Obama entourage visit to Mexico City. Are Americans braindead not to make the easy connection in timing for an Obama visit to Mexico City and the first splash of Swine Flu cases ten days later? Not a single mention in the obedient lapdog intrepid compromised US press networks!!

◄$$$ THE EUROPEAN PARLIAMENT WILL PURSUE THE W.H.O. SCANDAL BASED UPON THE PANDEMIC DECLARATION OF SWINE FLU. FINALLY, AN INITIATIVE WITH POTENTIAL TEETH. $$$

A parliament motion was introduced by Dr Wolfgang Wodarg, former member of the German Bundestag and current Chairman of the European Parliament Health Committee. Wodarg is a medical doctor and epidemiologist, and a specialist in lung disease and environmental medicine. Wodarg considers the current pandemic Swine Flu campaign conducted by the World Health Org to be one of the greatest medical scandals of the century, in his words. Add Cap & Trade to that list that includes the corrupt Green Movement. The Council of Europe member states will launch an inquiry in January 2010 on the influence of the pharmaceutical companies on the global Swine Flu campaign, with special attention given to the extent of the pharma industry's influence on WHOrg itself.

The corrupted WHO organization has been granted powers by numerous governments to declare pandemic and set programs into action. The Health Committee of the EU Parliament has unanimously passed a resolution calling for the inquiry. The step is the first broad scale inquiry toward public transparency of what is called a 'Golden Triangle' of corruption between WHO, the pharma industry, and academic scientists. The parliament motion was introduced by Wodarg, head of the Parliamentary Assembly of the Council (PACE) of Europe. The text of the resolution states, "In order to promote their patented drugs and vaccines against flu, pharmaceutical companies influenced scientists and official agencies responsible for public health standards to alarm governments worldwide and make them squander tight health resources for inefficient vaccine strategies and needlessly expose millions of healthy people to the risk of an unknown amount of side effects of insufficiently tested vaccines. The 'Bird Flu' campaign of 2005 and 2006 combined with the 'Swine Flu' campaign seem to have caused a great deal of damage not only to some vaccinated patients and to public health budgets, but to the credibility and accountability of important international health agencies." Strong words!!!

The Parliamentary inquiry will examine the issue of a 'falsified pandemic declaration' by the WHO in June 2009 on the advice of its group of academic experts, SAGE, many of whose members have been documented to have intense financial ties to the same pharmaceutical giants such as GlaxoSmithKline, Roche, and Novartis. These firms benefit from the production of drugs and untested H1N1 vaccines. The Parliamentary inquiry will investigate the influence of the pharma industry in creation of a worldwide campaign against the H5N1 Avian Flu and H1N1 Swine Flu strains. The inquiry will be given urgent priority in the general assembly of the parliament.

In his official statement to the Committee, Wodarg was specifiic. He criticized the influence of the pharma industry on scientists and officials of WHOrg. He believes the situation has developed where "unnecessarily millions of healthy people are exposed to the risk of poorly tested vaccines," indeed involving a flu strain that is vastly less harmful than all previous flu epidemics in his words. Wodarg stressed the role of the WHO and its the pandemic emergency declaration in June as the special focus of the European Parliamentary inquiry. In April 2009, the WHO criteria for a pandemic was changed for more liberal interpretation. In fact, a pandemic was declared by WHO in the United States last autumn even though the total number of Swine Flu deaths was less than standard influenza! As a result of classification for the Swine Flu as pandemic, nations were compelled to implement pandemic plans and also the purchase the vaccines. The inquiry will also to look at the role of the two critical agencies in Germany issuing guidelines on the pandemic, the Paul-Ehrlich and the Robert-Koch Institute. See the Global Research article (CLICK HERE). Let's see if Wodarg is suddenly the victim of suicide, professional discredit smear, or personal family threat. Much precedent exists. Let's hope Wodarg is a real war dog!

CREDIT CRISIS RESUMPTION IN BONDS

◄$$$ THE MOVEMENT OF FORCED CONVERSION TO USTREASURYS HAS BEGUN. THE USGOVT EXERTS ITS CONTROL VIA THE TAX DEDUCTIBLE NATURE OF SELF-ADMINISTERED PENSION PROGRAMS. LATER MIGHT COME BANK CERTIFICATES OF DEPOSIT, BUT NEXT SEEMS THE PENSION FUNDS AS AN EASIER EXPLOITATION. $$$

The USGovt control and leverage comes from the tax angle. Most self-administered pension fund accounts are fed by motivation to exploit the tax deductible contribution tax laws from income diversion, with limits. Talk has entered the financial networks of the potential to effectively force vast fund flows into the USTreasury market. The USTBond bubble requires increasing funds to feed and sustain it, like all bubbles. The hidden agenda is to prevent the collapse of the USTreasury market! The source targeted is the 401k and IRA accounts held by the people. Forcing individuals into USTreasurys as an cockeyed annuity is exactly what Social Security does. The USGovt is setting up a stage to usurp, exploit, and drain the private pension funds, the private ones being easiest to seize. The near 0% USTBill yield and ultra-low USTreasury yield assure minimal gains for these funds. The more urgent motive is to keep the USTreasury bubble alive. Purchase power of the pension funds will fall, since the earning yield will fall below the price inflation rate. The mechanism is likely to be a highly restricted set of choices for 401k and IRA investments, like short maturity USTreasurys. Already, USGovt and civil service workers are marched into G-Funds of minimal yield sponsored by federal debt securities. If people want to preserve the tax deductible investment, they soon will have to join the herd and invest in the USTreasury bubble. The Japanese Govt did the same thing back in 1990, forcing all government and postal workers to invest in JGBonds earning next to nothing.

Conclude that the USDept Treasury smells smoke and feels pressures to maintain an unsustainable financial asset bubble. My forecast is unflinching for a USTreasury Debt default. The path of mandatory USTBond investment serves as confirmation of the heightened risk. The next likely step will be much more magnificent, if bank CDs must be converted into USTreasurys. All it requires is shutdown of the FDIC and implicit order for all banks to enter USTreasurys upon conversion in order to maintain the insurance coverage for bank deposit funds. The trillion$ sitting in banks as certificates of deposit lie as targets for the inflation bubble engineers. Actually, the herding of investment funds into USTBonds is a natural followup to the nationalization of Fannie Mae & Freddie Mac. The USGovt is gradually morphing into the primary investment center for bonds, while the US Federal Reserve has already morphed into the chief underwriter of these toxic bonds. The USFed is insolvent, overloaded with toxic bonds, needs to unload them to the USGovt. They require assistance. The USGovt and USFed will seize the private sector savings without any doubt whatsoever, except to the fools. The governments in the United States, Britain, and Europe have all displayed similar responses. The current dead end of 0% rates offers no potential for a return to normalcy. Instead, the USGovt will seize more assets like a great cancer. The USTreasurys will act as a grand Black Hole.

The will of the people is irrelevant in today's world of manifested Fascist Business Model. See the process of the Communist Politburo formation with its many czars. See the evolution of USGovt ownership of property in the millions of units with Fannie Mae. The private Investment Company Institute claims 70% of US households object to the idea of the USGovt requiring retirees to convert part of their savings into annuities backed by USTreasurys, in any guarantee of steady payment for life. Households have a strong preference to preserve retirement account features and flexibility. The ICI survey was based on a survey of 3000 households from November 20th to December 20th, and included a 1.8% sampling error. The USDept Treasury and USDept Labor will formally request for public comment in mid-January on ways to promote the conversion of 401k savings and Individual Retirement Accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis Borzi and Deputy Assistant Treasury Secretary Mark Iwry. They are spearheading the effort in support of Bubble Director Ponzi. The change that Obama promised was actually communism. The member companies of the Investment Company Institute manage $11.6 trillion of assets in mutual funds, including sponsored 401k accounts. Fidelity Investments quotes the average 401k fund balance dropped 31% to $47,500 at the end of March 2009 from $69,200 at the end of 2007, after a review of 11 million accounts. Americans are saving less, not more, and are becoming much more poor. A propaganda campaign seems underway to discredit the 401k programs as leading individuals toward excessive risk, excessive fund management fees, and minimal returns on investment. So USTreasurys are the answer with near 0% returns but USGovt guarantee? See the Business Week article (CLICK HERE) or the Denninger article (CLICK HERE).

◄$$$ USGOVT TAKES MAJORITY STAKE IN THE G.M.A.C. BLACK HOLE. THERE IS NO END TO ITS INVESTMENT IN DECAYING FINANCIAL FLESH. $$$

Over the yearend holiday, the USGovt announced it will take a majority ownership stake in the ruined auto lender GMAC, providing another $3.8 billion in aid to the company. GMAC has failed to raise equity from private investors to cover its losses. Enter the USGovt to aid a dead entity and prop yet another zombie. GMAC already has been gifted $12.5 billion in direct USGovt aid, increasing its stake to 56% from 35%. The federales hold $14 billion in loans to the crippled GMAC. The USGovt will ramp up direct involvement in Politburo annex style, with plans to appoint four of its nine directors. GMAC is the sixth failed company taken over by the USGovt. Treasury Secy Geithner offered justification when he said, "We said if GMAC does not raise capital from the private markets, if you are unable to, we will put capital into it because of its importance to the stability of the system. It was never going to be possible for GMAC. They are in a unique and difficult situation." Strangely, GMAC bonds are suspiciously behind the World Trade Center financial underpin, a topic not to be pursued here. See the Washington Post article (CLICK HERE).

◄$$$ MONEY MARKET FUNDS ARE REALLY HEDGE FUNDS MANAGED BY THE BANKING SYNDICATE. REDEMPTIONS ARE SOON TO BE HINDERED BY NEW RULES. $$$

Recall that 18 months ago, money market redemptions occasionally came at less than 100 cents per dollar. Several funds were deeply embarrassed with sizeable mortgage bond holdings for that extra yield. Systemic stresses might soon lead to blocked redemptions. An important proposal awaits a decision in the overhaul of money markets. The new regulation would enable money market fund managers to exercise the option to "suspend redemptions to allow for the orderly liquidation of fund assets" in its words. Without much argument of substance any longer, the entire US capital market has degraded into a hedge fund, where the safest investment locations can be denied to investors by a mere declaration of extraordinary circumstances. A change in rules for redemption might bring about an unintended consequence. Removal of the offers to inject more funds into the supposedly safe location might actually explose the money markets as Ponzi investment proxies. They are with massive holdings of Treasury Bills, Reverse Repos, Commercial Paper (supply chain debt), Agency Paper (mortgage bonds), Certificates of Deposit (safe bank funds), and other twisted instruments issued by finance companies. See the Zero Hedge article (CLICK HERE) or the Jesse Crossroad article (CLICK HERE).

◄$$$ A.I.G. STANDS AS FIGUREHEAD TO BROKEN AMERICAN FINANCE. THE SEED OF TRUTH COMES NOT FROM CURRENT PROPAGANDA, BUT FROM PAST DISCUSSIONS AT THE TIME OF COLLAPSE. THE TALKS INDICATE A PERCEIVED WORTHLESS STOCK. COLLUSION IS RIPE ACROSS THE SYSTEM. $$$

Executives of AIG thought their company was so worthless, that they demanded from the USGovt paymaster that compensation be given in cash and no stock. Complicity by AIG auditors Price Waterhouse Coopers is an easy alleged extension. A New York Times magazine article by Steven Brill relies upon a reliable source, Kenneth Feinberg, the bank pay czar from the newly formed US Politburo. Implications extend easily to the required financial statement audits for any publicly traded company. Price Waterhouse Coopers (PwC) signed off on financial statements that indicated billions of dollars of common shareholder equity. The Securities & Exchange Commission once again is silent, the Wall Street lapdog run by folks in a Wall Street revolving door of collusion. 'Worthless' is the precise word used by Anastasia Kelly, the AIG general counsel and vice chairman at the time, during compensation negotiations, according to Feinberg. Brill further pointed out that officials from the Federal Reserve Bank of New York agreed with the AIG position, after the USDept Treasury told Feinberg to consult with them. So collusion on false financial statements extends from AIG to PwC and the New York Fed. The SEC is a travesty, a pox upon the US financial body, led by the current stooge player Mary Schapiro. The AIG stocks trades in the $29 to $30 range. The real bad joke flashing like on a billboard is that with a market cap of $4 billion, AIG benefited from four USGovt aid packages worth over $180 billion. AIG is still worth zero. The other source of funds to finance the game is the sale of new stock issuance. The phony Financial Accounting Standards Board rule applied since April 2009 has permitted a grand charade, even a foundation to be formed upon which a stock rally was perpetrated. To say the system is broken seems an inadequate description at a time when investors must fend entirely for themselves, the regulators fully co-opted in criminal collusion. See the Zero Hedge article (CLICK HERE).

◄$$$ THE A.I.G. COVERUP BY USTREASURY SECY GEITHNER HAS BEEN THRUST INTO THE OPEN, AFTER FORCED DISCLOSURES. SO FAR HE HAS ELUDED FULL SCRUTINY, BUT HE BLOCKS THE INVESTIGATIONS. BLANKFEIN OFFERS UNUSUAL DENIALS. THE CENTER IS GOLDMAN SACHS RECEIVING FULL PAYMENT ON CREDIT DEFAULT SWAP CONTRACTS, FIRST IN LINE. THE T.A.R.P. SLUSH FUND REMAINS IN FOCUS. $$$

Bloomberg has been brave to tell the story, as has ex-CNBC banished reporter Dylan Radigan. In 2008, the Federal Reserve Bank of New York, led at the time by Timothy Geithner, ordered American Intl Group to block disclosure to the public about the AIG payments to banks during the depths of the financial crisis, as USGovt bailouts were being fashioned. The smoking gun lies with e-mails between the company and its regulator. AIG stated in a drafted document from a formal regulatory filing that it had paid 100 cents on the dollar to Goldman Sachs Group and French bank Societe Generale, in redemptions of Credit Default Swaps bought from AIG. Most other financial firms received far less than full parity value for impaired CDSwap contracts. GSax thus received a backdoor slush fund payout. The New York Fed removed such references, according to the e-mails, when the AIG filing was made public on 24 December 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight & Govt Reform Committee. These e-mailed communications were not revealed willingly, but rather as a result of investigation and discovery of evidence. More Congressional pressure comes. Edolphus Towns, chairman of the same House Oversight & Govt Reform Committee, announced he will issue a subpoena effective last week to the Federal Reserve Bank of New York for documents related to American International Group . He said, "This subpoena will provide the Committee with documents that will shed light on how and why taxpayer dollars were used for a backdoor bailout." See the Bloomberg article (CLICK HERE).

Events on the AIG investigation flow rapidly, with daily developments. Former Treasury Secy Hank Paulson has been asked to join his successor Tim Geithner in testifying before the House panel conducting the investigation of the AIG bailout payments. The invitation is for a hearing set for January 27th led by Towns to discuss AIG bank counterparties on $62.1 billion in derivatives. Another surprise invitation was handed out. Stephen Friedman has also been asked to appear. He is the former New York Fed chairman who currently serves on the board of Goldman Sachs, which screams of conflict of interest. Paulson has made bland denials of having no role whatsoever in the contract redemptions. Jenny Rosenberg is a spokeswoman for the Towns staff. She said, "Chairman Towns is well aware of the fact that President Bush's Treasury Secretary orchestrated this bailout." See the Bloomberg article (CLICK HERE). Towns had better prepare for bribes and threats. The walls are closing in on Treasury Secy Geithner, whose resignation or firing is widely rumored. He even mentioned the end of his brief one-year tenure is at Obama's call. Issa is no slouch. He might be a force to contend with. He knows big money, being the wealthiest member of the USCongress. Speaking of big money, the elite Wall Street bonus pool is quite impressive, enabled in part by USGovt slush funds and insider trading. Goldman Sachs handed out an average of $595k in bonuses to its staff. JPMorgan handed out an average of $463k. The entire bonus pool for Wall Street oligarchs, center of the US financial crime syndicate, totaled $36 billion.

The controversial known payments by AIG to favored counterparties were a backdoor bailout, a syndicate payoff, and securities fraud. Tens of billion$ in losses would have been suffered by Goldman Sachs and the French bank instead of taxpayers, who were clear victims in the latest episode of syndicate fraud. GSax CEO Paulson, USFed Chairman Benanke, and NYFed head Geithner were all major players in both the multi-faceted credit crisis and the botched Lehman liquidation. They are also major players in the coverup and fraudulent climax. Now Treasury Secy Geithner finds himself at the center of attention, withholding vital evidence on the looting of taxpayers to the benefit of financial companies, in a premeditated deliberate effort to protect Wall Street firms. See the Bloomberg article (CLICK HERE). President Obama recently reiterated his support for Geithner. Instead of focusing on the Geithner corruption or the Obama endorsement, the US press networks focus on racially insensitive remarks made by Senate Majority Leader Harry Reid.

Dylan Ratigan lodged some effective hardhitting charges against the Wall Street establishment in the past year on television. He was banished for his efforts, crossing the line. He has returned to take on the Boyz with yet more volleys. It seems if a barking dog is not put down, it comes back to bark again. My hat is off to Ratigan, who showed some big stones. Dylan Ratigan presents a damning 5-count indictment against Geithner and concludes with a statement. He said, "Since then, the Treasury Secretary has yet to really prove whose side he is on, the Wall Street big wigs or the American taxpayer. Here is the litmus test: Mr Geithner, show us the past ten years of AIG e-mails or step down, so that we can get somebody who will. A crime has been committed against the American taxpayer and right now you are standing at the door of the crime scene refusing to let anyone in. Show us you are not involved. Mr Geithner, prove the White House correct in defending you. All we are asking for is the transparency promised by the President you serve." Ratigan outlines five specific charges. 1) Geithner influenced AIG by e-mail not to disclose its full redemption of contracts for Goldman Sachs. 2) He admitted he was not a regulator at the New York Fed, the epicenter for the bond fraud, bank bailouts, and banker executive bonuses. 3) He removed the $400 billion cap for covered losses at Fannie Mae & Freddie Mac mortgages. 4) He maintained relations far too cozy with Goldman Sachs, JPMorgan Chase, and Citigroup executives in his initial months as Treasury Secretary. 5) He directed TARP funds to the big financial firms in gross excess. See the Zero Hedge article (CLICK HERE).

There is no change we the American people can believe in. The Obama Admin appointed a Wall Street insider errand boy for an important post. Geithner has a mediocre professional resume. The approval process cited reluctance to go through on the job training. Actually, insiders wanted to continue the fraud, and to protect the guilty. Nothing has changed, precisely as the Jackass predicted over a year ago with a new administration coming into power.

In a lame attempt at continued coverup, the Goldman Sachs CEO Lloyd Blankfein said he never received any request to accept less than full value for AIG Collateralized Debt Obligation exposure. An interested sharp reader commented. He said, "Bingo. The Timmy fix was in. Why would the subject even come up? That would be a violation of the arrangement. The whole point is to not ask! If you ask, you are negotiating. If you are negotiating, the number is less than 100%. That was not the deal. The deal was to wave off any notion of the rationale to do anything less than 100%." See the other Zero Hedge article (CLICK HERE).

Blankfein testified last week that he was never urged to accept a discount loss on investment contracts his firm held with American International Group. He said, "I never got a request myself about taking less. It never came up in any conversation I can recall." What about conversations they agreed never occurred? What about agreements never to discuss but rather to assume full redemption? In the AIG bailout fraud scheme during the nationalization of its cesspool orchestrated by the USFed, the ruined AIG paid out 100 cents on the dollar toward Credit Default Swaps purchased by bank counterparties including Goldman Sachs. The New York Fed, led by Geithner (current Treasury Secy), claims it was forced to make full payments after banks refused to accept so-called haircuts, according to a November audit. The audit was conducted by Neil Barofsky, the special inspector to the TARP program. Someone is lying, Geithner or Blankfein, probably both, since both are cogs in a crime syndicate. My guess is Blankfein did not have to be confronted, since Geithner gave him a well understood WINK, or an agreement was cut before Geithner was appointed as the new Treasury Secy. The AIG rescue has grown to a $182 billion pit so far, and it is hardly finished. Critics call the sweet deal for Goldman Sachs and other influencial firms a 'Backdoor Bailout' of the Wall Street firms. Barofsky has said that the New York Fed made only limited efforts to negotiate discounts. Such is the nature of WINKS. See the Bloomberg article (CLICK HERE).

◄$$$ LEHMAN BROTHERS CLEANUP PROCESS IS VERY COMPLICATED. LAWSUIT CLAIMS ARE A VERITABLE FLOOD. YEARS WILL BE REQUIRED TO RESOLVE THE ENTIRE MESS. $$$

A bizarre situation has begun to unfold in the legal resolution of Lehman Brothers. Damage claims from misrepresentation, bond fraud, and securities violations pour in, most real, some exaggerated. Big banks seeking large claims against Lehman Brothers will be forced to prove their case in public courts, the executive leading the unwinding of the failed bank has warned. Bryan Marsal, the CEO of Lehman Brothers Holdings, who is in charge of maximizing recoveries to all its creditors, stated his intention to create valid accurate precedent cases. Billion$ of losses are at stake, linked to trades in derivatives, even in Europe and Asia. Marsal said, "We are going to go after the outliers. We plan to bring these claimants in front of the judge to argue why this claim is not warranted, and by doing so persuade the other claimants to be more reasonable. There are a lot of innocent people that got hurt bigtime by the collapse of Lehman. We need to make sure the banks understand that this is not a profit windfall, that damages being claimed ... are in most cases far in excess of losses. We will be in court with these claims in the second quarter, if these banks do not come to their senses before." The resolution of Lehman Brothers has entered into its second year. In all, $800 billion (=£500B) of claims for losses that have been filed against the US estate of Lehman. Claims tied to credit derivatives should pose the biggest piece in the process, including $60 billion made from about 40 of the largest US banks. Marsal demands cooperation for proving the legitimate claims. Complications are aplenty. Provisions under standard contracts by the trade body for the derivatives industry actually calculate potential losses in a manner with little bearing on reality. Extreme claims have come. Experts familiar with claims in the bankruptcy process mention that calculation of losses can account for the increased cost at the time to replace those trades. What a mess! Precedent might be set for future lawsuits against other Wall Street firms.

◄$$$ THE MONETIZATION OF USTREASURYS HAS TAKEN A STRANGE ACCOUNTING COURSE. A FICTITIOUS LEDGER ITEM HAS CROPPED UP CONVENIENTLY. THE HOUSEHOLD CATEGORY AS BUYER OF USTREASURYS HAS BEEN BORN, A PHANTOM. IT HIDES POORLY BASIC MONETIZATION. ALSO, DIRECT BIDS HINT LOUDLY OF BERNANKE TRYING TO HIDE HIS HUGE SECRETIVE BIDS IN ORDER TO CHANGE THE CREDIT MARKET SENTIMENT. $$$

The USDept Treasury and USFed work overtime to purchase USTreasury Bonds secretly with printing press funds, newly minted electronic money, called monetization, given the euphemistic name Quantitative Easing officially. They have boldly gone where no man has gone before. They have created a fictional ledger item in the accounting. Eric Sprott first exposed the mysterious non-existent 'Household' category for buyers of USTreasurys. Sprott called it a 'Catch All Category' for hidden activity that balances the ledger in the USFed flow of funds report. He claimed its unreasonable volume of such purchases made little sense. See the Sprott analysis in PDF form about the Ponzi Scheme (CLICK HERE).

While indulging in coffee, Jesse also ran with the story. The US Household category of buyers does not really exist. It is a phantom, a statistical fictitious category, a convenient nicety. Who are they? Clearly not pensions. Could they be bank certificates of deposit in backdrop? Doubtful. See the Crossroads Cafe article (CLICK HERE).

This handy 'Household' category suddenly ramped up their buying from $15 billion to $500 billion in a flash of time. Smells like monetization from my angle downwind. If truth be known, the USFed has purchased between 80% and 90% of all USTreasury debt auctioned last year. When maturing securities that must be rolled and new debt issuance are factored, the gross amount of USTreasury issuance in year 2009 exceeds $2.5 trillion. This much is not in dispute. Check the official Treasury Investment Capital reports (CLICK HERE) to see that the foreign holders of USTreasurys have increased their holdings by $422 billion over the first nine months of 2009. Even by TIC data, foreign entities have purchased a mere 16.9% of newly issued USTreasury debt securities. The USDept Treasury has made a complete mockery of the data regarding foreign indirect bidders published, which reflect foreign central bank purchases at debt auctions. Monetization is occurring with steroids!

Bernanke is having a difficult time disguising his gigantic monetization, as he bids secretly at USTreasury auctions. Some astute observers like the Gold Anti-Trust Action Committee (GATA) notice telltale signs. In the last week, auctions of USTreasury Notes attracted extremely strong buying from domestic institutional investors, fueling speculation that one big US bidder has bid with both hands. Refer to direct bids, the institutional investors who bypass the so-called primary dealers that underwrite government bond sales. On Wednesday, direct bids accounted for 17% of the sales of $21 billion in 10-year Treasury Notes, far higher than the recent average of 7.4% seen. It was the highest direct bid percentage in a 10-year Treasury auction since May 2005. On Tuesday, direct bids accounted for a record 23.4% of the bidding for $40 billion in 3-year Notes, up from an average direct bid of 6% seen. David Ader is strategist at CRT Capital. He concluded, "It appears to us that someone is trying to hide their apparent interest in owning these auctions from the rest of the market." Rick Klingman is managing director at BNP Paribas. He said, "It is unusual to see such a spike in the direct bid. I would imagine it is one big bidder. There is no way we will find out who it is, not now, or ever." The surge in direct bids comes after widespread predictions that the record levels of UTreasury debt issuance would exhaust investor demand, driving yields higher. Among the warnings was one by PIMCO, concerned about the escalating supply of USTreasury debt. The credit market has been abuzz in recent weeks. Monetization is the ONLY answer to explain the discrepancies in low foreign accumulation relative to enormous USGovt debt issuance and a strong jump in direct bids. Bernanke is not altering inflation expectations, but rather USTreasury integrity impressions. Direct bidders are usually domestic non-primary dealer banks and large institutional investors. Normally their presence at Treasury auctions is small, since they purchase bonds through the primary dealer network, which currently numbers 18 banks and broker/dealers. See the GATA article (CLICK HERE).

◄$$$ THE CHINESE HAVE BEGUN TO THUMB NOSES AT WALL STREET ON DERIVATIVE LOSSES, AS THE FINANCIAL WAR ESCALATES. IN RESPONSE, MORGAN STANLEY SETTLES WITH A CHINESE FIRM HAISHENG. $$$

Catch this! A small Chinese power generator firm, Shenzhen Nanshan Power, defied Goldman on options losses and will not pay them. They rejected demands from a GSax subsidiary to pay out nearly $80 million in paper losses on oil hedge contracts suffered last December. The dispute over Chinese derivatives losses drags on like an open sore. The Chinese Govt is on record through their state assets monitoring agency as blaming Goldman Sachs, Citigroup, Merrill Lynch, and Morgan Stanley for extremely complicated and incomprehensible derivatives products. The power generator firm Nanshan has rejected notices from J. Aron & Co, a trading subsidiary of Goldman Sachs for $79.96 million as compensation for terminating oil option contracts. Nanshan formally stated, "We will not accept the demand by J. Aron for all the losses and related interests. We will try our best to negotiate with J. Aron and resolve the dispute peacefully... But the possibility of using a lawsuit cannot be ruled out when talks fail." A lawsuit is assured, but it will be conducted on Chinese soil. The State Assets Supervision & Admin Commission (SASAC) made its controversial and combative position last September when it said it would back state owned Chinese companies in any legal action against the foreign banks that sold them oil derivatives that resulted in losses. Some dispute exists over Nanshan oil option contracts being signed without company authorization.

Many Chinese firms, especially airliners, suffered huge losses from complex oil options last year as oil price collapsed to nearly $30 a barrel. Veiled within the dispute is the firmly held belief that Wall Street firms improperly engineered the oil price plunge. SASAC revealed last autumn that 68 Chinese firms suffered net losses of 11.4 billion yuan (=US$1.67 billion) by October 2008 on call & put options signed with foreign banks. Many lawyers and industry analysts believe that Chinese firms and their foreign banks will likely attempt to settle their disputes privately or through arbitration, with precedent. Only 31 firms are authorized in China to trade derivatives directly in the overseas market. Its regulators began to strictly prohibit such hedge trades in early 2009 after losses were exposed. See the Reuters article (CLICK HERE).

First in line to make a settlement, Morgan Stanley has agreed to accept $7 million from Haisheng Holdings Company. They are a major juice producer in China. The settlement is much less than the $26 million that Morgan Stanley had sought in the High Court. Haisheng will cut off its own legal proceedings in Shaanxi province, in a counter lawsuit against Morgan Stanley for alleged misrepresentation of contracts. The US investment firm admits a resolution of the dispute to mutual satisfaction. An open legal battle in China would have subjected Morgan Stanley to financial and political risks. However, the door of precedent has been opened wide. The agreement could encourage other Chinese companies to take legal action against foreign banks on Chinese soil as a tactic to escape contracts loaded with big losses. See the Financial Times article (CLICK HERE).

NEXT BREAKDOWN & KEY PERCEPTIONS

◄$$$ PERCEPTIONS OF USFED CHAIRMAN FAILURE ARE RUNNING RAMPANT. THE CENTRAL BANK FRANCHISE SYSTEM IS BROKEN, BUT NOT YET RECOGNIZED AS SUCH. THE SYMPTOMS FOR RECOGNITION ARE CROPPING UP. $$$

In a sign of a profound shift in the tilt within reporting news and analytic commentary, the past two central bank chiefs are increasingly being associated with failure. Google now finds more matches when the current USFed Chairman name is entered with the word 'failure' versus the Greenspan name. The combination of (Greenspan + failure) brought 1.06 million results, while the combination of (Bernanke + failure) brought 1.44 million results. See the Blogspot article (CLICK HERE).

◄$$$ MATT TAIBBI IDENTIFIES THE RED-BLUE CRIMINAL NATURE TO THE POLITICAL STRUCTURE. MY VIEW IS THE FASCIST BUSINESS MODEL GONE DEEPLY CRIMINAL WITH SYNDICATE CONTROL, FORMER BY BUSH AND LATTER BY CLINTON. IT HAS REPUBLICAN AND DEMOCRAT CHAMBERS IN ITS SYNDICATE FOUNDATION. POWERFUL CRIMINAL SYNDICATES OPERATE IN THE UNITED STATES WITH FIRM CONTROL OF THE BANKS, THE MILITARY, THE PRESS, THE PHARMAS, AND THE CONGRESS. $$$

Matt Taibbi is a brave critic who puts himself at risk by being so directly critical and specific in criminal activity, using colorful language. His pointed attacks are extremely accurate, hitting home. He wrote, "For what we have learned in the last few years as one scandal after another spilled onto the front pages is that the bubble economies of the last two decades were not merely monstrous Ponzi schemes that destroyed trillions in wealth while making a small handful of people rich. They were also a profound expression of the fundamentally criminal nature of our political system, in which state power largesse and the private pursuit of (mostly short-term) profit were brilliantly fused in a kind of ongoing theft scheme that sought to instant cannibalize all the wealth America had stored up during its postwar glory, in the process keeping politicians in office and bankers in beach homes, while continually moving the increasingly inevitable disaster to the future. The essentially complicit nature of the two ruling political parties was in this way covered up for decades, as the crimes of the Democrats were greedily consumed as entertainment by the Limbaugh crowd while the crimes of the Bushies became hot-selling T-shirts and bumper stickers for the Air America listenership. The abiding mutual hatred the red & blue groups shared consistently prevented any kind of collective realization about the structure of the overall scheme." My view sadly is that military dictatorship, failed state, and civil war are the most likely outcomes for the nation. The parasites might consider killing their host and blame it on external factors like terrorists of Islamic origin. The only Islamic threat to the United States in my view is their potential coordinated sale of USTreasury Bonds. See the True Slant article (CLICK HERE).

◄$$$ CHINA IS DUE BEFORE LONG TO SUFFER A NOTABLE LAPSE, MUCH LIKE DUBAI. THE LAPSE MIGHT BE A SEVERE SETBACK, EXTENDED FROM ITS PROPERTY BUBBLE IN A CONSTRUCTION BOOM. THE AFTERMATH WILL REQUIRE SOME OF THE SOVEREIGN WEALTH FUNDS TO RECOVER FROM THE SHOCK. THE ANNOUNCED TIGHTENING OF MONETARY POLICY WILL POSSIBLY TRIGGER A SERIES OF DEBT DOMINOS IN DEFAULT. CHINA IS CLEARLY OVER-HEATING. $$$

James Chanos is a legend on Wall Street, a wealthy hedge fund investor. His specialty is foreseeing the collapse of high flying companies like Enron whose stories went beyond their reality. The current investment project of Chanos is the busted myth of the biggest conglomerate of all. China Inc is relied upon by most world analysts and economist to lift the global economy out of recession. However, Chanos warns that China's hyperstimulated economy is headed for a crash, rather than the predicted sustained boom. Its surging real estate sector is buoyed by a flood of speculative capital. In his words, "[China is] Dubai times 1000 or worse." He openly suspects that Beijing has been cooking its books for a long time, falsely reporting economic growth in excess of 8% more recently. See the Finance Yahoo article (CLICK HERE). A comment came from my best source of banker information, who led me to make a public warning in August about the Persian Gulf risk that would ripple to London bankers. He said, "Chanos is spot on. But once China blows out from the initial break, it will come roaring back. That will be the moment when China needs to be reckoned with."

My view for the last two years has been that China surely harbors bubbles, especially with commercial construction, but it could manage its own with the significant $2400 billion war chest. See the latest snapshot on reserves, lending, and money supply in a Bloomberg article (CLICK HERE). My view has been that China has a deeply entrenched problem with banking system reliance upon US$-based assets, but it could manage its own with the war chest. Its other threat is civil, due to lost jobs and interrupted migration from rural to urban centers. My view has been reinforced by the relatively low impact on the Chinese economy from its stock market bust and revival. It appears that Chanos and my reliable source expect a disruptive chapter to China. The craters might soon appear, proving me to be too optimistic. China does remain an enigma wrapped in a puzzle, and will continue to be exactly that for a long time.

The Peoples Bank of China has raised the bank reserve ratio in an effort to cool their economy. The PBOC last week raised the proportion of deposits that banks must hold as reserves to cool the Chinese Economy. Their credit boom is ominous after asset bubbles litter the landscape and threaten to open the door to price inflation. Reserve requirements will increase by 50 basis points as of January 18th, raising it to 16.0% at that time. The move is ahead of the April expected timeframe, but excludes rural cooperatives in the agricultural industry. Expansion of credit has triggered alarms. Mark Williams is senior China economist at Capital Economics in London. He said, "This sends a pretty strong signal that a more substantive tightening is probably coming. It warns banks and it warns firms that they are going to face higher interest rates down the road." Loan volume has grown by 9.21 trillion yuan (=US$1.3 trillion) in the first 11 months of 2009, assuring a rebirth of bubbles in property and stock prices. Banks lent a staggering 100 billion yuan (=US$14.6 billion) each day in the first week of January, according to the official China Securities Journal. That compares with 294.8 billion yuan for all of November, with release of December data pending. January volume is thus four times greater, prompting an offiical reaction. We saw it in the bank reserves ruling.

The decision follows two government debt auctions conducted in the past week where officials guided yields higher, auguring higher borrowing costs. Jing Ulrich head is of China equities and commodities at JPMorgan Chase in Hong Kong. She said, "This series of moves by the central bank provides a clear sign that policy makers are following through on their pledge to guide credit in order to pre-empt rising inflation and avoid asset price bubbles." Their proportionately much greater stimulus package and a large amount of maturing bills means Chinese Govt benefits from much more ample liquidity than other nations. In an immediate sense, the decision will help remove about 300 billion yuan (=US$42.2 billion) of liquidity, according to estimates by Xing Ziqiang, an economist in Beijing at elite China Intl Capital. The flood of cash into the economy will be partially drained off, when about one trillion yuan of PBOC bills mature between mid-January and mid-February, Xing pointed out. Economists are pushing up price inflation forecasts for China in 2010. The leading brokerage firm Citic Securities raised its price inflation estimate to 3.2% from 2.6% in a recent report. Bank of America Merrill Lynch increased its forecast to 3.1% from 2.5% last week. Leading Chinese economists openly express concern about an over-heated economy. Yao Zhizhong and He Fan, economists with the Chinese Academy of Social Sciences, believe that growth could accelerate to 16% in year 2010 unless stimulus measures are reined in. Premier Wen Jiabao pledged in a speech on December 27th to curb rampant property prices in some parts of China after the biggest nationwide increase in 16 months was registered in November. See the Bloomberg article (CLICK HERE). Some analysts believe price inflation will come to the USEconomy via export from China. We will see.

So the Chinese gave considerable warning of the bank reserve tightening in policy change. Yet the Bloomberg article mentioned the ubiquitous word 'unexpectedly' once again. The US financial press networks are dumbed down, as they believe the US prattle of recovery and normalcy. They are surprised by a constant stream of news, most of which is not of recovery or normalcy. The Chinese, it should be pointed out, are not Western politicians who say one thing, and do the opposite. They are legitimately worried about creating bubbles and the deep effect of their busts. They are trying not to re-inflate bubbles, but their efforts will probably be to no avail. They are also concerned by greed and corruption, as they punish it harshly in show trials and sometimes executions. They must realize vividly that their own version of 'Irrational Exuberance' has driven up global markets since September 2008, and their own economy is over-heating. As an extension to the USEconomy in a monetary sense, they are perversely more sensitive to USFed policy perhaps than the United States is.