GOLD INVESTMENT REPORT
PRECIOUS METAL & ENERGY
CURRENCIES & STOCK INDEXES

* Golden Potpourri
* Currencys in Disarray
* Europe Ready to Double Rescue Fund
* Commodities in the Crossfire
* Gold Intrigue Mounts
* Gold Price Consolidates



HAT TRICK LETTER
Issue #82
Jim Willie CB, 
“the Golden Jackass”
19 January 2011

"For Gold to match the growth in US M1, M2, public debt, budget deficit, Gold will have to reach $1800, $2400, $7800, and $13,200, respectively. While I cannot imagine gold going to $13k, these numbers tell me that calling Gold a bubble is a bit premature. In my view, money supply, public debt, the budget deficit are in a bubble, not Gold, not yet." ~ Harry Schultz

"If everybody gets widely enthusiastic and thinks the Euro is OK now or the dollar is OK now, then I would probably be forced to sell. Things are happening with the dollar that could make it more attractive. I mean they are talking about giving tax incentives for people to bring their dollar holdings back home that can make the dollar go a lot higher for a while. Things could happen, and we will just have to wait and see how it works out." ~ Jim Rogers

"That we stand ready to use our gold to meet our international obligations, down to the last bar of gold, if that be necessary, should be crystal clear to all." ~ William McChesney Martin (USFed Chairman, 1963) but he never knew Nixon or Rubin or Clinton or Greenspan

"Frankly, we are concerned about the illiquidity in the physical silver market. We believe the delays involved in the delivery of physical silver to the Trust highlight the disconnect that exists between the paper and physical markets for silver." ~ Eric Sprott (re: Sprott silver fund)

"I think not owning gold is a form of insanity. It may even show unhealthy masochistic tendencies, which might need medical attention. Real assets hedge paper money being printed into oblivion." ~ Robin Griffiths (technical strategist from Cazenove)

"Any recent high school graduate with $30,000 saved for college who invests that money into silver and becomes a minimum wage apprentice for the next four years, will likely have enough money afterwards to buy a median priced US home. Not only that, but they will have workplace experience that is far more valuable than the worthless college degrees of any of their friends." ~ The National Inflation Assn

GOLDEN POTPOURRI

Editor Note: An update on Silver Keiser coins in special edition. Caveat and admission of over-statement. An alert subscriber wrote, "The coins sold out soon after they were available for order. Some people were trying to locate the seller (in Canada) by the address given on the SilverKeiser website, but it turned out to be a mailbox but no office. So there was a lot of talk on the Max Keiser blog as to whether or not the whole thing was legit. The Northwest Territorial Mint claimed that the Keisers were being made. One of their people told me that they had received an order to produce the coins but none had made yet, that was around December 15th. The coins are due to be delivered in January. I have received a couple of emails from the SK people telling me that they would let me know when the coins would ship. So at the moment the issue is Wait & See. In the Hat Trick Letter report, you used the words HAS RELEASED to describe the coin offer. This gives the impression that they had the SK's on hand and ready to deliver, which was not the case." The Jackass jumped the gun. Thanks to 8Ball.

◄ See the Special Report entitled "China Flexes Its Global Muscles" for the January Hat Trick Letter. The Chinese Swap Window strategy is cunning, as it isolates the United States. A secret agenda proceeds on course. A massive USTreasury Bond dump is soon to find brisk trade, in support of the Euro currency, with motive. The volume of EU sovereign debt purchase will be less than the massive flow of USTBonds sold through the Dollar Swap Windows of various national labels atop the windows. China intends to convert a significant portion of the purchased EuroBonds into Gold bullion, as well as other hard assets. They will force the deal with IMF facilitation of the European member nations. China has built its Portuguese Dollar Swap Window. Next is the window from Spain, each a major piece in an array of windows. The volume of Spanish debt doubles the adopted debt to date in coverage. Italy is next, to complete the PIGS quartet. Recall that Ireland swallowed the IMF poison pill, a very different freakish sideshow. The World Bank issued bonds denominated in Chinese Yuan, a sign of  the times. The Yuan currency is going global, with gradual convertibility. The Chinese participation in EuroZone bond purchases has assured full IMF cooperation. The ultimate in Dollar Swap Window, a Chinese bank account, comes to a neighborhood near you. The Bank of China is invading the United States in retail banking.

The Chinese need the European markets and European technology, and so does Russia. Germany will be providing it, while serving as the mediator between Russia and China at the same time. The HK bankers are losing relevance in the geopolitical picture. Beijing does not need HK to be there for them as a transformer to the West any longer. China has tightened monetary policy, step by step, while reducing future risk of additional asset bubble expansion. The USGovt keeps the floodgates wide open. On Christmas day, the Peoples Bank of China hiked their benchmark lending rate by 25 basis points to 5.81%, the second hike in two months. China suffered a failed debt auction, similar to other failures across the world. China has resumed its cutback on Rare Earth Metal exports, as the trade war widens again. China has ambition to produce commercial aircraft on a competitive basis, marked by a COMAC deal signed with Boeing. Prepare for the ruin of Boeing, which has fumbled badly its new product line after giving away its last product. China has neutralized both Airbus and Boeing in the aircraft industry, only to surpass them later. Watch for a Boeing bailout by the USGovt next year. General Electric has teamed up with a major Chinese aircraft maker to provide avionics. In the process CEO Immelt made a huge surprising concession in an embedded grand technology transfer that shows highly questionable judgment.

◄$$$ GOLD & SILVER HAVE PRACTICAL VALUE IN DIFFERENT RESPECTS. GOLD FOR BANKING VALUE, SILVER FOR COMMERCIAL VALUE. BULLION HELD OUTSIDE THE UNITED STATES IS PROTECTION FOR NOT ONLY COLLAPSE BUT ALSO INTERNATIONAL RESTITUTION POSSIBLY FORCED UPON THE NATION FOR GLOBAL FINANCIAL CRIMES BY ITS LEADERS. EVEN HEADS OF STATE FIND IT GOOD LEGAL TENDER FOR EXILE AFTER BEING DEPOSED. SEE THE TUNISIAN LEADER. $$$

Gold bars and coins appropriately store value in the $millions. Silver bars and coins practically store value $thousands. Gold will be useful to store extreme wealth, to tuck away life savings. Silver will be useful to expedite commercial demand, to use it for life purchases. The day is coming when a person can pay rent or buy a load of groceries or supplies in silver, but NOT IN GOLD, since a single gold coin will be worth too much. Not enough 1/10-th ounce gold coins are in circulation. They are not too popular. Silver will handle commerce, while gold will handle banking. The practical commercial value of silver will push the Gold/Silver ratio down hard toward 40 in future years, my forecast. The threat of obstruction to gold & silver purchases, of forced precious metal sales to the big US banks, or even of confiscation (like in bank safety boxes) is very real. People must be more prepared.

Permit Anthony Wile describe the threat to your wealth, since so well articulated with an historical tone. He is Executive Director of The Foundation for the Advancement of Free-Market Thinking. He wrote, "Our concern is although the sovereign debt crisis is primarily a creation of the Wall Street financial elite, the consequences will be almost global in nature due to their success in exporting this flawed financial scam to politicians and governments across the West. We are concerned the nations of the world may well demand retribution and reparations from the United States and Wall Street for the crisis in the longer term. America will no more be able to pay the outrageous costs than was the Weimer Republic of Germany with the illegal war debt levied by the Treaty of Versailles. Your assets, benefits, and future prosperity will be forfeited to Washington's elites as they try to buy time to right a sinking ship, and to no avail. The impact on our wealth and future prosperity will likely dwarf what has happened before in Argentina, during the Russian collapse, and in Germany with the post First World War Weimer republic. We are not entirely sure where the safe haven locations will be in the coming bond crisis and dollar collapse, but be assured neither you or your assets will be safe inside the United States or most other debt ridden western nations as this event unfolds." See the Daily Bell guest essay (CLICK HERE). Seizure of IRA/401k pension funds, seizure of bank deposit certificates, both in the form of USTreasury conversion, is next in line. In five years, a Nuremberg trial for Anglo bankers is not outside the realm of possibility. The World Court in the Hague is extremely busy, whose prosecution pathways are unclear, as of now.

The deposed Tunisian President Ben Ali has reportedly fled the country loaded with 1.5 tons of gold bullion bars. Initial objections are the bank were overcome before he and his wife pilfered 45 million Euros in gold. They flew to Dubai (UAE) then Jeddah (Saudi Arabia) before their ultimate destination, actually unknown, maybe even to Ben Ali. He is surely to be welcomed in certain capitals, whose leaders have no conscience, but do lust for gold. The story is very involved, not to be fully covered. Suffice it to say, the Army in Tunis refused to fire into a crowd upon orders from the president, who was sure to face impeachment for various offenses and betrayals. The Saudi people are outraged. Their internet is abuzz with protest. Bandar al-Nogaithan is an attorney in Riyadh. He told the Financial Times, "I am ashamed and dishonored that my country is hosting and protecting a criminal, a dictator, and a human rights violator. Why do we have to be a safe haven for dictators? How would Tunisians feel about us now? Even the West refused to receive him." Because of the Brethren Concept, where elite protect elite, and he has gold for passage. Besides, his cousin might be married to some sheik's brother-in-law. See the Zero Hedge article (CLICK HERE). My personal hope is Ben Ali finds a home in Somalia, where he is swallowed whole by an enterprising beneficent warlord in Mogadishu, if one exists. If not, may he be kidnapped, his gold stolen, and the supply find its way to the Central Exchange Fund of Canada. Perhaps the bigger issue is contagion of revolt against Arab governments for discontent over price inflation and rampant unemployment.

◄$$$ THE FORECLOSURE GLUT IS BEING BETTER QUANTIFIED. JUST THE INVENTORY FROM THE BIG FOUR BANK R.E.O. PLUS FANNIE MAE TOTALS $31 BILLION IN HOMES. THE FORECLOSURED HOMES MAKE UP ONE THIRD OF ALL SALES, AND COMPOSE A 3-YEAR SUPPLY. THE HOUSING MARKET IS SUFFOCATING. $$$

RealtyTrac served warning to the big US banks, Fannie Mae, Freddie Mac, and local communities. The foreclosure glut is coming. It will produce staggering effects on the housing market. My forecast is another 20% decline in housing prices, to levels well below construction costs. The year 2010 saw a record number of bank repossessions totaling over one million. It would have been worse if not for the Robo-document controversy that froze the system for over a month. Rick Sharga from RealtyTrac said, "Early indications in January were that this robo-signing related delay will be over by the end of first quarter if not sooner. We are going to see a significant spike in foreclosure activity early in 2011, and that will contribute in part to 2011 being a record year." He estimates that over 250 thousand foreclosures were delayed, and will arrive like an avalanche in 2011, probably the majority in the first half of this year. The four biggest US banks have close to $7 billion worth of foreclosed properties (REO) on their books. Fannie & Freddie have $24 billion between the two. REO sales make up about one third of all sales in the current housing market, enough to direct depress prices by comparisons during the appraisal processs. The REOs comprise an estimated three years worth of home supply. The price discount is an obvious incentive to buy an REO home. Low USGovt rate incentives are another. But several downsides exist in offset, like homes being trashed or gutted by the exiting owner, vandalized by mindless people, and even sabotaged. Some are occupied by squatters. See the CNBC article (CLICK HERE). Only a moron, a corrupt Wall Street bond promoter, or a mindless USGovt agency employee would actually believe the housing market is in recovery. It is so bad out there that some banks are bulldozing foreclosed homes rather than deal with the long process to ready the properties for sale, then actual sale.

◄$$$ VIRGINIA LEADS AMONG STATE MOVEMENTS TO ESTABLISH AN HONEST TANGIBLE CURRENCY. A GROWING LIST OF OTHER STATES HAS JOINED THE BANDWAGON, AN EXTENSION OF TENTH AMENDMENT RIGHTS IN DIRECT CHALLENGE OF THE CONSTITUTIONAL BASIS OF THE USDOLLAR ITSELF. $$$

The Virginia legislature has created a subcommittee to study monetary alternatives to the USDollar in the event of a USFed collapse. They are considering Gold. The Commonwealth of Virginia introduced House Resolution 557 to establish a joint subcommittee in order to study whether the an alternative currency should be adopted, as opposed to the USDollar spewn by the USFed into the great void. Virginia is openly evaluating the prospect of the breakdown of the USFed banking system that governs the major banks and the currency output. They wish to put in place contigencies to "at least mitigate many of the economic, social, and political shocks to be expected to arise from hyper-inflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System. Americans may employ whatever currency they choose to stipulate as the medium for payment of their private debts, including gold or silver, or both, to the exclusion of a currency not redeemable in gold or silver that Congress may have designated as legal tender." The mere existence of such a proposal should worry the federalists and their monetarist elves, as the risk is growing for critical mass and sufficient impetus for other states to consider the same ultimate alternative plan. See the Zero Hedge article (CLICK HERE) and the actual proposal from the Virginia Legislative Information System (CLICK HERE).

The movement among many states has spread like a quiet wildfire. The states know full well that the monetary system is broken, that the big US banks are insolvent, and the USFed is a tool to serve the elite and cause a blaze of inflation. Numerous are the resolutions that cite a litany of legislation and references which frame the currency arguments. Other states with similar movements are Georgia, Oregon, South Carolina, Utah, Indiana, Montana, Washington, Colorado, Missouri, and Idaho. The Georgia General Assembly has proposed a bill called the Constitutional Tender Act. It was introduced with direct references, that "Article I, Section 10 of the United States Constitution provides that no state shall make anything but gold and silver Coin a Tender in Payment of Debts." The bill proposes that banks in Georgia offer gold and silver coins and accept them as deposits in segregated accounts, state debt payments be made only in gold and silver coin, and state payments will be made in gold and silver. Paper money can be used in state transactions but only upon the consent of both parties. In addition, all debt and pension obligations to and from the state would be converted from US Dollars to equivalent gold and silver based upon prevailing market prices. And the bill lastly proposes that checks drawn from gold and silver denominated accounts be honored as payment in gold and silver.

These developments are revolutionary, but the Jackass prefers not to use the word. States are awakening to the fact that the USDollar has been an illegal instrument entity since 1971, when the US broke off the Gold Standard. The resulting series of crises has been the outcome, ending in the current climax breakdown. These state movements with targeted legislation for the purpose of studying alternative currencies represent the will of people to exercise of state's rights in response to incredibly powerful invasive federal government intrusions. A landmark era in American history could be on the verge, if state governments begin to exercise their Constitutional rights to enforce fair and honest money. See the Before It's News article (CLICK HERE). Look out for terrorist attacks upon the States, a main Syndicate method. The USGovt has already called Tea Party initiatives and Tenth Amendment movements terrorist undertakings.

◄$$$ EMERGING NATIONS HAVE BEGUN TO SUFFER MASSIVE PRICE INFLATION. IN THE LAST TWO YEARS, INFLATION HAS BECOME THE TOP EXPORT FROM THE UNITED STATES. OTHER NATIONS ARE NOWHERE AS EFFECTIVE IN APPLIED GOEBBELS PRINCIPLES, AND DO NOT LIE OR CONCEAL THEIR PRICE INFLATION, LIKE CHINA AND INDIA. THESE TWO B.R.I.C. NATIONS TYPIFY THE NASTY IMPACT ON EMERGING ECONOMIES. INDIA IS FEELING PRICE INFLATION SMACK THE NATION. BRAZIL HAS LOST ITS TRADE SURPLUS. $$$

In the previous years, the US chief export was bond fraud with various flavors. Nations across the world were forced to absorb the losses and not to expect any prosecution of the criminal banks involved. In the year 2011 expect widespread trouble spots from serious outbreaks of price inflation, as inflation is exported from the United States but without benefit to the USEconomy. The same will occur at the point of origin, except US leaders will claim the USEconomy realizes growth and deceive on the actual data. In India, Prime Minister Manmohan Singh declared an urgent meeting with the Cabinet Committee on prices at the end of December. The topic was the surge in price inflation and how to deal with it. Food prices are of key concern, for this bustling nation with 1.05 billion people, home to over 17% of the world's population. Focus was given to the soaring prices on fruits, eggs, meat, fish, milk, onions, and vegetables. Onions have surged to $1.67 per kilo, which compares unfavorably to the average daily wage of $2.23. Their food prices are rising at a 14.4% annual rate, a ten month high. The US food prices are rising at roughly the same pace. See the Business Insider article (CLICK HERE).

Food prices are rising fast in Brazil, another BRIC pillar nation. My theory is that Amazon Rain forest destruction has finally caught up with the largest South American nation, home of 175 million people. For the past year, leader s in Brazil have been grappling with serious financial impact of the currency war initiated by the United States. Their finance minister Guido Mantega has warned that a trade war is in full blossom. He placed blame on China, the United States, and other nations. The Chinese are trying to maintain their trade advantage by holding down the Yuan currency. The US is trying to devalue their colossal debt held in foreign hands. Brazil is doing what it can to prevent further appreciation of its currency. Expect the currency & trade war to be a principal topic at the World Trade Org and the G-20 Meetings. Last September, Mantega accused rich countries of intentionally devaluing native currencies so as to protect their export trade, and keep their economies more competitive. Trade between Brazil and the US has declined from an annual surplus of $15 billion to a deficit of $6 billion, as a direct result of USGovt desperate initiatives which have debased the USDollar from extroardinarily loose monetary policy. Harsh words toward the US were offset by careful criticism of China. Mantega stated that China's undervalued currency was distorting world trade. He said, "This is a currency war which is turning into a trade war. The exchange rate is one of the main drivers of economic policy, more so even than productivity." The Brazilian Real currency has increased by 39% against the USDollar in the last two years, with tremendous internal impact. Brazil has been compelled to react to a swarm of foreign capital entering its financial system, chasing the highly attractive long-term interest rate between 10% and 11%. Bond arbitrage has been somewhat curtailed, but not eliminated, due to an tax on investment capital imposed by Brazil. They sense a trade war from the currency war underpinnings as much as any country on earth, on an equal basis as Japan. See the British Broadcast Corp article (CLICK HERE).

◄$$$ THE USFED HOLDS A GIGANTIC SWATH OF BUBBLE VALUED USTBONDS AND AN EQUALLY GIGANTIC RAFT OF WRECKED MORTGAGE BONDS. THE USTREASURYS WILL FACE DEFAULT VALUATION LATER, WHILE THE MORTGAGE SECURITIES ARE WORTH HALF THE DEMONSTRATED VALUATIONS. RUIN COMETH. $$$

The USFed is a gigantic hedge fund taking a huge deadly losing bet that the housing market will revive. It will not. It holds over $2 trillion in USAgency Mortgage Bonds, private label mortgage bonds, Maiden Lane toxic bonds, and worthless Collateralized Debt Obligations. They have a combined certain 50% to 60% loss, which means $1 trillion in red ink. Combine with their massive $1.7 USTreasurys held at ultra-low yields, and the other half of their balance sheet is riddled with bubbles and airpockets of valuation. The USFed is a toxic dumping ground, a buyer of worthless scheiss of last resort. As their financial standing deteriorates further, the foreign creditors will be abandoning the USTreasury flagship. The only buyers left are central banks attempting to ward off a rising domestic currency. The entire world is watching the Chinese devise schemes to shed USTreasurys, sure to leave the USFed isolated. The USFed admits in their accounting to have over $100 billion in Undefined Assets. One must wonder where they account for CDO bonds of zero value. The lion share of the rising Foreign Holdings is attributed to England and its Caribbean offshore secret slush fund offices. England has owned the US banking system for a century, using its central bank as a billyclub for exploitation. See the Zero Hedge article (CLICK HERE). A USTreasury default will be obvious before too many more months, when the Double Dip decline in housing renders its screeching pain, and exposes the USFed as deeply insolvent. The $2 trillion in toxic mortgage paper will decline even more in value, as questions arise on the ruin of the USFed itself. They will either dump their mortgage paper on Fannie Mae sewage treatment plant, or resign their commission with the USCongress. If Fannie adopts the full mortgage paper mountain, they might attempt to become the Collectivist Landlord in a Marxist state.

◄$$$ JIM GRANT CLAIMS QE2 IS JUST MONEY PRINTING. FANCY NAMES CANNOT ALTER THE RECKLESS NATURE OF THE DEBT MONETIZATION, WHICH HAS ELEVATED THE GLOBAL CURRENCY WAR AND CAST A HARSH LIGHT ON THE USGOVT. USFED GOVERNOR PLOSSER DELIVERED A SLAM CRITICISM OF THE USFED MONETARY POLICY, USED AS A BLUNT WEAPON, WHICH HE BELIEVES HAS CAUSED WORSE PROBLEMS FROM QE2. $$$

Independent superstar monetary analyst Jim Grant objects to the performance of Alan Greenspan as USFed Chairman. His tenure marked a major era of central planning replete with grand errors. The USFed plans to do much more money printing as part of its heralded and highly controversial Quantitative Easing programs. In my view, the QE rounds will be endless. Grant referred to Hayek's concept of pretense of knowledge, when discussing the USFed's claim to be even capable to measure economic growth or price inflation, and to anticipate the results of their policies. Grant expects a bonfire of the currencies, as the USFed seems embarked on a path to devalue the USDollar without direct mention of the strategy. No central bank wishes to have a strengthening currency, since that weakens the export trade. Asian nations have been asked to bolster their currencies in coordination, something they have resisted. A grand mercantilism war has emerged as part of the global trade war, having spread into a currency war. The central bankers in Japan, England, the United States, and even Switzerland have openly expressed the goal to weaken their currencies. They do not explicitly say so, but they wish to reduce their currencies versus gold, thus lifting their bank reserves. Witness the galloping Competing Currency War. Much doubt exists over the actual plans and intentions of the USFed. Amidst a chorus of objections and feint support, Bernanke seems hesitant, vague, deceptive, deceitful, inconsistent, and driven by a hidden agenda that might obscure a growing desperation. Barry Eichengreen of the University of California Berkeley stated, "The Fed needs to stop dithering and make precise the extent of the Quantitative Easing it intends." What has developed in my opinion is the growing perception among the economists, financial analysts, and bank analysts is that the QE programs will be an endless production of monetary printing that will ultimately destroy the USDollar, the USTreasurys, the USBanks, and the USEconomy. A great risk has been shaken, of expectation that the USFed can rescue the failing system. The USFed might soon be recognized as fallible, even a failure.

Jim Grant said, "I have one suggestion for the improvement of our financial thought, and that is plain speech. QE is one of these PhD approved euphemisms that does not convey the essential point. We need for intellectual hygiene. These talk about QE as if they did not intend to debase the currency over which they have temporary control." The USEconomy suffers from major imbalances and structural defects. The debate over whether the problems are cyclical was called semantic, since as time passes, the cyclical dislocations, castoffs, and friction from riptides gradually become part of the structural problems. Employees working for government account for 1 in 7 laborers in the USEconomy, with half of them being teachers. See the Bloomberg video (CLICK HERE).

Philadelphia Fed Governor Plosser delivered the most strident criticism of the Bernanke USFed. He attacked the inherent interpretation of the license afforded by monetary policy. He said, "How do you use monetary policy to burst a bubble in Las Vegas real estate, where house prices were appreciating at a 45% annual rate by the end of 2004, without damaging the Detroit market, where prices were increasing at less than a 3% annual rate? Because monetary policy is such a blunt instrument, asking monetary policy to do what it cannot do, such as seeking to deliberately influence the evolution of asset prices, risks creating more instability, not less. Moreover, the moral hazard created by the belief that the central bank would intervene if prices of a certain class of assets became misaligned might, in fact, cause more inefficient pricing and more instability, not less. Monetary policy cannot reverse the sharp decline in house prices when the economy has significantly over-invested in housing. I have advocated the elimination of Section 13(3) of the Federal Reserve Act, which allowed the Fed to lend directly to corporations, partnerships, and individuals under unusual and exigent circumstances." See the Zero Hedge article (CLICK HERE). Wow!! Direct slam, and right on target!! Watch Plosser be forced to resign.

John Hussman came up with a truly clever side-splitting harangue, laced with harsh criticism of the USFed. He decries not only the QE2 but the absurd rationalization for its purpose. At an old job, we used to call it pretzel logic. He has a similar description when he wrote, "As for the notion that the Fed's targeted Treasury purchases have directly aided the economy, the argument requires bizarre logical gymnastics. It demands one to believe that although the purchases were intended to stimulate the economy by lowering rates, they have been successful without lowering them, and in fact by raising them, because the expectation of lower rates was so stimulative that it caused rates to rise, so that the higher rates can be taken as evidence that lowering rates without lowering them was a success." Up is down, bad is good, white is black, well understood. Brilliant explanation by Hussman, truly brilliant!!

◄$$$ THE MUNI BOND COLLAPSE IS RIGHT AROUND THE CORNER. THE S.E.C. WATCHDOG IS BITING INTO THE BONE, FORCING A BREAKDOWN WITH OPEN MOTIVE TO BUST GOVT LABOR UNIONS. THE MUNI BUST WILL BE THE OPENING ACT TOWARD THE USTREASURY DEFAULT. $$$

The majority of large US states have insolvent finances. In the past month, the Municipal Bonds have widely plunged in value. Their underpinning of Build America Bonds no longer provides a foundation of value. Intrepid Charlie Gasparino has broken the story that the Securities & Exchange Commission is analyzing Muni Bond prospectus disclosures. He said, "What they are looking at is whether municipalities, cities and states, are adequately disclosing their budget woes to investors who buy these bonds." The SEC has a toolbag loaded with pins to prick the Muni bubbles and bust the states. The barely hidden motive is to destroy the government labor union pensions and render the rest of the nation without pensions, leveling the field. The Munis are the last remaining bond ship yet to be sunk. An absolute bond collapse has one last niche to be ruined, as Munis circle the toilet in a toxic spiral swirl. The last is the USTreasurys, as Muni Bond funds will find shelter in the frying pan of USTreasurys. See the Zero Hedge article (CLICK HERE).

◄$$$ UKGOVT DEBT IS IN A DEATH SPIRAL. HYPER-INFLATION IS COMING TO LONDON VERY SOON. THE BRITISH POUND IS WALKING DEAD PAPER. THE DISASTER IN ENGLAND FORESHADOWS A CLIMAX IN THE UNITED STATES. WITNESS THE MATCHING BOOKENDS OF DEBT CLIMAX MARRED BY MONETIZATION, THEN SYSTEMIC FAILURE FROM MONETARY RUIN. $$$

UK banks have huge known exposure to PIIGS sovereign debt. Its great exposure to Spain is soon to come front & center, after a semi-crippling blow was felt from the junk bonds tied to Ireland. Moodys just warned on Spanish Govt debt for downgrade. UK banks hold a toxic pool of toxic PIIGS debt that declines in value with each passing month. With sovereign debt from Europe pulling the UK banks on one side, the other wrecked side is the domestic situation. The runaway spending and heavy borrowing by the British Govt continue to break out of control. Like their American counterparts, much talk, little action, worsening fiscal condition, but continued arrogance under the illusion of maintained control. The following chart illustrates the UKGovt debt approaching 1 trillion Pounds. Notice two things, the leveling off of revenue income and the continued uninterrupted rise in spending, the gap highlighted in red. No progress can be seen in reducting the deficit. The graph does not tell the full story, since the accounting of Northern Rock and Royal Bank of Scotland bailouts mask much deeper losses.

James Turk is a man on location in London. He concluded, "The bottom line is that the UK huge deficit is not sustainable. It will lead to ever greater amounts of so-called Quantitative Easing by the Bank of England. Inevitably this money printing. The turning of UK government debt into British pound currency will sooner or later lead to hyper-inflation. I had always thought that the US dollar would hyper-inflate and collapse before any other major currency. Lately, I am not so sure. Government spending and borrowing in the UK look even worse than the dire levels being reached in the US. Therefore, the dubious distinction of being the first currency to hyper-inflate in the months ahead may end up going to the British pound." See the Free Gold Money Report article (CLICK HERE).

The UKGovt finances are astonishing, disastrous, and ready to blossom in toxic display. If the UKGovt seriously inflates by monetizing most new debt, then the revenue receipts will rise but not as much as spending rises. Later, after capital destruction is in accelerated mode, less revenue will come from business shutdowns amidst profit squeeze and cost rise. If the UKGovt submits to the deadly austerity that reins in spending, then the revenue receipts will fall even more quickly than spending rises. This is the END CHAPTER TO THE  KEYNESIAN COLLAPSE on Anglo soil with matching US and English bookends.

CURRENCYS IN DISARRAY

◄$$$ CHINA CONDEMNED THE USDOLLAR AS A BOGUS WORLD CURRENCY. THE USGOVT DEBT SPIRALS OUT OF CONTROL. THE DATA IS GROSSLY UNDER-STATED, AS THE DEBT IS MUCH HIGHER, WHEN UNFUNDED PENSION AND SS/MEDICARE OBLIGATIONS ARE ADDED. THE NATIONAL DEBT HAS GROWN BY OVER 50% IN ONLY THREE YEARS. THE PATH IS UNSUSTAINABLE, BUT THE USGOVT SEEMS INCAPABLE OF REDUCING THE DEFICITS. $$$

The USGovt federal debt has surpassed $14 trillion, the world having noticed. China has made harsh deprecating comments on the lack of viability for the USDollar and its world reserve currency status. Nations are dangerously dependent on outside trade for staple food supplies and energy supplies. Economies grint to a halt if interrupted. Social disorder follows. Even militaries would be hobbled. Rationing of important supplies is a natural consequence. That is where the Jackass believes the United States is headed. Some foreign nations import far more foodstuffs than the USEconomy, and thus are vulnerable. The USGovt total debt was once a mere $9 trillion in January 2008. The national debt has grown over 55% since then, just three years. The just cause for the huge runup in accumulated debt is hardly the germinated seed or fresh soil for an economic recovery. The money went to several bad players and bad causes, endorsing and redeeming failure. It went to bail out the big US banks responsible for much bond fraud, even counterfeit. It went to pay off Wall Street firms, many of whom face prosecution and court ordered home loan putbacks that could cost a $trillion or more. It went to pay for the vast errors and bad judgment of the USFed-sponsored housing bubble engineered by Wall Street firms in an orgy of credit extension founded in reckless home loan underwriting, borrowing, and spending.

The endless housing boom was a grand lie. Meanwhile, the investment banks were leveraging to the lie by 30:1 ratios. The cleanup, absent any hint of restructure, required the USGovt to expand its balance sheet and take on huge liabilities. The USGovt and USFed generosity has sustained the big US bank performance. Apart from broken hidden balance sheets, they reported huge profits in 2009, and more stellar profits in 2010. Those who rejoice at the spectacle are either morons or lunatics, unable to notice that the nation is fast being poisoned. The above chart ignores the grandiose unfunded USGovt liabilities for Social Security and a vast array of pension obligations that are estimated to exceed $62 trillion. Foreign creditors will not sit idly and watch the debt parade continue without redress or reform.

◄$$$ OTHER OBSCURE CENTRAL BANKS ARE PRINTING MONEY WITH ABANDON. THEIR ACTIONS SUPPORT THE USDOLLAR INDIRECTLY, AS THE CURRENCY WAR CONTINUES IN ALL GLOBAL CORNERS. LATIN AMERICAN GENERALLY IS COURTING DISASTER BY MONETARY INFLATION. $$$

Other central banks around the world are printing local currency with reckless abandon also, not just the United States, England, and Western Europe. The Chilean Peso moved to new lows against the USDollar in late December, a development that urged its central bank to announce that they will purchase US$50 million per day, until they have amassed a total of $60 billion in USTreasurys. Bad judgment is made expedient by urgent need. They feel compelled to maintain their competitive edge with exports. They are not alone. Peru, Argentina, and Brazil have embarked on the same path. Up to now, Latin America has escaped the ravages of banking system breakdown and deeply rooted economic problems that have rendered great damage to Europe and the US. Their response to adversity by monetary expansion could be the crucial action that invites an encounter with disasater.

◄$$$ WITNESS THE END OF USDOLLAR HEGEMONY, A LONG PROCESS WITH NUMEROUS STEPS. THE END OF AN ERA IS OCCURRING IN PARADIGM SHIFT. THE DESTINATION FOR THE UNITED STATES IMPLICITLY IS THE THIRD WORLD. WATCH THE G-20 MEETING FOR THE BEST CLUES. $$$

Randall Forsyth was my favorite analyst in the 1990 decade. He taught the Jackass much during apprenticeship days, reading from Barrons every weekend, reading at parks, under trees, at the beach, on the couch, and on porch chaisse lounge chairs. He is a special analyst in my opinion, one with great ability to capture what is important, with focus on the most salient points. Here are some major points by Forsyth in summary form. Start with his conclusion and follow with some of his important messages. He concluded, "Seen from a historical perspective, if the 20th century was the American century, it would be natural that the dollar would the dominant currency. The 21st century is being called the Asian century. Brazil is part of that, now that China is its main trading partner, overtaking the United States. So too is Australia, which is booming as a commodities supplier to Asia. The demand for dollars from the rest of the world has been of inestimable benefit to the US economy. It quite simply allows Americans to consume more than they produce and save less than they invest. In other words, to live beyond our means. The dollar's dominance will not be toppled in 2011 but will wane over the coming decade and beyond. Then America will have to start picking up the tab for what had been a free lunch." See the Barrons article entitled "The Beginning of the End of Dollar Hegemony" by Randall Forsyth (CLICK HERE).

  • Redbacks (Chinese Yuan) are in the process of replacing Greenbacks (USDollars). The year 2010 could be a watershed marking the beginning of the end of the US$-based Western-centric monetary system.
  • Monetary reform must reflect emerging economic conditions, and therefore include both the Chinese Yuan and Gold. The concept has been endorsed by Zoellick at the World Bank. Such reform is essential to ease the tensions in the growing Global Currency War.
  • The USFed's latest round of Quantitative Easing #2 has set off a firestorm of protest, including from Brazil's Mantega. The uniform reaction has been that QE2 is an unauthorized currency devaluation and forced debt writedown. QE2 has begun to raise the issue of an urgent need to replace the USDollar as global reserve currency. QE debt monetization of the reserve currency invites global hyper-inflation, which has indeed already begun.
  • The hope of the Euro currency to provide a viable alternative to the USDollar has faded and is dying. Riots in European cities are as common as debt auctions. Serial bailouts have accomplished nothing, except to confirm the ruin of the monetary system. The enduring crisis lays bare the contradictions such as monetary union without fiscal union, aggravted by attendant nationalistic animosities.
  • Bilateral agreements have sprung up, such as Russia and China to settle bilateral trade of $50 billion in their respective currencies. Global trade settlement in US$ terms is on the way out, a long process, since the majority of trade continues to be in USDollars. The financial markets are following suit, as more centers denominate contracts and instruments outside US$ terms. The rise of the Dim-Sum Bonds has come, corporate bonds issued in Chinese Yuan terms. The world is sick of the main US exports, bonded debt and large scale fraud. Enter the beginning of the Redback age.
  • The great American privilege of living beyond its means, beyond its income, not saving, going deeper into debt, relying upon output from foreigners, increasingly unemployed and dispossessed of their homes, IS COMING TO AN END. The world wants less of the US$ debt securities. As the USGovt deficits spiral out of control, foreigners are buying fewer USTreasury Bonds. American ingenuity turned from product development to reckless financial engineering. The USDollar will be toppled from its perch, not today or tomorrow, but in the not too distant future.
  • The components of the USDollar Index are obsolete. They ignore the BRIC countries of Brazil, Russia, India, and China. To the absurd, Belgium and the Netherlands have greater voting rights in the IMF than China, the world's second largest economy after surpassing Japan. (See the G-20 Meetings as a focal point to address the imbalances, to vent the frustrations, and to forge new alliances.)

My view is very much in synch with Forsyth, an old informal distant mentor. Although he does not directly mention the Third World as eventual destination for the United States, it is fully implied from powerful debt burden resolution and consequences. At least an intelligent active well-tuned brainstem can justifiably infer that destination. The players within the USEconomy will increasingly be forced to bid up the popular currency in order to obtain goods (finished and crude) in the global marketplace. The bidding process will push the USDollar down, usher in powerful price inflation, invite grotesque shortages, force debt defaults and writedowns, continue the death process for big US banks, push down home prices, and assure endless recession. These are hallmark symptoms of the Third World. The biggest new threat of all on the monetary front is the introduction of the New Nordic Euro currency. The big questions outstanding would be whether the new currency would contain a Gold component, and whether it would be required for crude oil purchase. Watch the G-20 Meeting for hints of friction, direction, and action.


◄$$$ ISSING GAVE STERN WARNING ABOUT THE FUTURE OF THE EURO CURRENCY. HE HOLDS OUT HOPE BUT REVEALS HIS PESSIMISM. HE CONCLUDES THE MOMENT OF TRUTH HAS MERELY BEEN POSTPONED BY THE NUMEROUS BAILOUTS OF THE IRRESPONSIBLE NATIONS IN SOUTERN EUROPE. $$$

The Euro currency's architect has given stern warning about its future, his words laced with pessimism. Otmar Issing is the influential former chief economist of the European Central Bank. He has warned that the existence of the common currency is threatened unless member countries find a way to impose tougher spending curbs. He offered his views in a November essay in the Frankfurter Allgemeine newspaper, updated and published in the Official Monetary & Financial Institutions Forum in London. Issing's views are particularly noteworthy because he was a key figure in the introduction of the Euro. A former member of the board of the Bundesbank, the German central bank, Issing joined the European Central Bank in 1998 when the institution was preparing for introduction of the new currency. He has the ear still of EuroCB head Trichet. He served as a member of the executive board in charge of economic analysis until 2006. Issing currently serves as president of the Center for Financial Studies, a research organization in Frankfurt. He also continues to advise the German Govt on financial reform. His opposition to bailing out Greece and other debt-ridden nations in the EuroZone reflects views broadly held in Germany. Predictions by Euro currency skeptics have proved true, Issing concluded. He openly warned leaders not to attempt to reconstruct a stronger political union behind the backs of European citizens. He called for tighter rules on government spending, automatic sanctions, and for independent oversight groups to determine when spending was in violation. His pessimistic note practically dashed hope for the continued existence of the European monetary union. Otmar Issing stated the following. See the New York Times article (CLICK HERE).

"With the failure to make sovereign state fiscal policies consistent with the conditions for the single currency area, policy makers not only have weakened the functioning of monetary union, but have also called into question its very survival. I have indeed become very concerned that politics fail to take the crisis as an opportunity to forcefully improve the framework. [Rescue of countries that have pursued bad policies] adds up to an open invitation to states to live beyond their means at the expense of others. The crisis brought further evidence of a basic design flaw of monetary union, namely that we could not rely for its sound working on member countries to carry out appropriate economic policies. A political union worthy of the name cannot be set up by stealth." If leaders create a de-facto political union under which disciplined countries subsidize the undisciplined, Issing wrote, "It will not be long before opposition to monetary union, and possibly other policies as well, appears on the agenda not just of extremist groupings but also of established political parties, in Germany and elsewhere. Europe has faced repeated crises in the past and each time has emerged on the whole in stronger shape. [As irresponsibility increases,] the more these tensions will endanger the existence of European Monetary Union. My conclusion at the start of 2011 is a somber one. We have not yet reached the moment of truth for the EMU. It has merely been postponed."

EUROPE READY TO DOUBLE RESCUE FUND

◄$$$ SPAIN COMPLETED A SUCCESSFUL BOND AUCTION, BUT THE EUROPEAN UNION CLEARLY NEEDS TO REPEAT THEIR HUGE BAILOUT, A FUND REDUX. PLANS ARE BEING HATCHED TO DOUBLE THE STABILITY FUND. A GREAT SIGH OF RELIEF CAME AFTER THE SPANISH GOVT BOND AUCTION. THE EURO ROSE AND EVEN GOLD FELL. FAST FORWARD MERELY ONE WEEK, AND SPAIN CANCELED A BOND AUCTION, PREFERRING A PRIVATE BANK CONFERENCE BOND SALE WITHOUT ANY TRANSPARENCY. PORTUGAL AND BELGIUM WILL FOLLOW SUIT IN THE SYNDICATED BOND SALE, OR FORCED FEEDING. $$$

The entire world came together, held hands, and prevented the collapse of the EuroZone by purchasing Portuguese and Spanish bonds two weeks ago. The auctions were called great successes. Even Japan came to the table with $billions in money. A portion was a direct placement of Portuguese bonds to China. Some expressed shock that neither nation suffered a bond auction failure. Bloomberg reported, "Spain sold 3 billion Euros of five-year bonds, meeting its target, at an average yield of 4.542%, lower than secondary market yields of 4.630%. Italy, the euro region's second most indebted nation, aims to issue as much as 6 billion Euros of debt due in 2015 and 2026 today." The quality of the auctions in Madrid was good. The bid to cover at 2.1 was a better than the 1.6 before, while the yield rose sequentially from 3.576% to 4.542% in a surge. Spain attracted stronger demand than in November. The bond spread between Spanish and German Govt yields narrowed to 235 basis points from 240 basis points in the following 24 hours. The Euro currency also enjoyed a 200 basis point rise in the two-day period. However, during the hoopla, the Gold & Silver prices fell somewhat hard. Afterwards, some comedy came in the form of a public comment by the Spanish finance minister. He claimed Spain definitely does not need a bailout. Consider that a confirmation of an urgent bailout need. It is actually being bailed out already by at least three central banks. The Spanish bond market received strong support from Chinese Vice Foreign Minister Fu Ying. In London, he said China has purchased Spanish Govt debt and will continue with more offiical purchases.

Like the United States, the European Union is not solving anything. They simply extend credit to cover debt, avert consequences, and buy time. They kick the can down the road, but the can is going nuclear quickly. The EuroZone finance ministers plan to discuss elements of the package next week at a meeting in Brussels, as focus has come to the EU Financial Stability Fund. The European Commission is considering a proposal to double the size of the 750 billion Euro bailout fund. An internal challenge is in progress. The Socialist government in Madrid must contend with large important bond redemptions totaling 15.5 billion Euros in April. They intend to demonstrate to investors that it can reduce their deficit to 6% of GDP this year from 9.3% in 2010, and provide significant shoring to its struggling savings banks, the Cajas. See the Zero Hedge article (CLICK HERE). Not a chance!! Not even a remote chance!!

The Spanish Govt in the latest week, just one week after a supposedly successful bond auction, canceled a Reverse Dutch auction planned for January 20th. Instead it will conduct a syndicated bond issuance, where participating banks underwrite the entire issuance, and assume the debt securities on their balance sheet. The objective is to spare Spain the embarrassment of a failed bond auction. The action is hardly a confirmation of a successful bond auction in the previous week. Both Portugal and Belgium are expected to follow suit with the quiet controlled syndicated bond sale in 1Q2011. The bank leaders are obviously fearful of a bond disaster in full view. Some analysts wonder if the European bond market suddenly died, despite the celebration a week ago of grand auction success, when even the Euro currency was given lift. See the Zero Hedge article (CLICK HERE).

◄$$$ A PORTUGAL BANK BAILOUT IS INEVITABLE, AS YIELDS ROSE IN THE DISTRESSED CLIMATE. THEIR FISCAL SITUATION IS WRETCHED, WORSE THAN IN SPAIN. THE P.I.I.G.S. ARE TOPPLING ONE BY ONE WITHOUT DETOUR. RISING BOND YIELDS WORSEN THE SITUATION WITH HIGHER BORROWING COSTS. DEBT FORGIVENESS IS URGENTLY NEEDED. THE E.U. STABILITY FUND MUST BE REPLENISHED OR PUT TO REST AND BURIED. EXPEDIENT USUALLY TAKES OVER, AND A FUND REFILL IS MOST LIKELY. $$$

To be more precise, a Portuguese sovereign debt rescue means a bailout of European banks that own its bonds. Those banks are scattered across Europe and London. Once again, the European Union and the Intl Monetary Fund must arrive to avert default. The soaring bond yields on Portuguese bond yields add huge distress to their government debt float, since borrowing costs have risen almost double in the last year. This is typical across Southern Europe, thus forcing the climax. Lisbon must follow the path taken by Greece and Ireland, except that Ireland chose the IMF financial suicide path instead. The IMF poison pill is pure suicide, no other description. The Portuguese bond yield has been flirting with the 7% level. It seems the 7% mark is the Maginot Line which forced a rescue package of some sort. Their debt situation is unsustainable. It is inevitable that Portugal must turn to the EU and IMF if they keep borrowing at these levels.

Toby Nangle is director of asset allocation at Baring Asset Management in London. He said, "In this environment, each auction by Portugal and Spain is seen by the market as a referendum on its likelihood of continuing without rescue. People are not looking for a failed auction. It is the rate they are looking at." A series from Lisbon, Madrid, and Rome comes for debt auctions, the largest being 6 billion Euros for Italy. Much attention has been diverted away from Italian Govt debt, since their ratios are more favorable. Greek and Italian borrowing costs rose during the blitz of bond issuance, from the sheer realization that the deficit flow is unstoppable. My view is that the higher volume of Italian debt to roll over is the greater issue, not the more favorable debt ratio calculations. Besides, all these government are grand liars on the volume, a factor made clear by the Goldman Sachs misrepresentation charges. The Netherlands issued 3.5 billion Euros of debt, and Germany 7 billion Euros in the last week.

The Portuguese situation pushes the limit of the EU bailout itself. A bailout for Portugal would probably force Germany to halt its objections to expanding the official 750 billion European Stabilization Fun rescue facility, as well as its objections to bond issues that guaranteed by all EuroZone members. Portugal is regarded widely as the crucial test on the fund. Perhaps the concept of the common bond will be revived. The German newspaper Handelsblatt reported last week that EU leaders are likely to discuss a fund increase in February. In the same report, official German objections from Chancellor Merkel were not relayed. She sees no need for additional aid for the debt plague in Southern Europe. A rescue for Portugal, since smaller in volume, seems expedient, preferred over the collapse of the entire PIIGS pen. See the Bloomberg article (CLICK HERE).

◄$$$ IRELAND IS STILL BROKEN. A BANK RUN IS IN PROGRESS WITH MASSIVE WITHDRAWALS. THE IRISH CENTRAL BANK HAS GONE HAYWIRE. LOOK FOR MONETARY INFLATION TO COMPENSATE, RESULTING LATER IN MASSIVE PRICE INFLATION. THE EUROCB STANDS IDLY BY, JUSTIFYING THE ACTIONS WITH VACANT WORDS AND WEAK SPINE. $$$

Accelerating deposit flight (bank run) from Irish banks has forced their central bank to print money with reckless abandon, independent of the European Central Bank. In November alone, 27 billion Euros of domestic deposits fled the Irish banking system, an amount equal to 5.4% of the entire desposit base. Think BANK RUN!! Total deposits were down triple that, 15.1% since deposit volume from non-Irish residents declined 28.6% year over year. The banking crisis on the Emerald Isle did not arrive until late in November. Expect therefore the data to become much worse as time passes. The Irish Independent has reported that the Central Bank of Ireland is financing 51 billion Euros in an emergency loan program, printing its own money. No collateral backs this new money creation, pure debt monetization. Other distressed nations clearly are following the USFed policy and pattern, with assured future massive price inflation and capital destruction. Central banks the world over have decided to vastly expand their balance sheets. A spokesman for the EuroCB justified the actions, claiming the Irish Central Bank is creating the money lent to banks, not borrowing cash from the ECB to fund the payments. The ECB position is that the Irish Central Bank can create its own funds if it deems it appropriate, with simple notification given to the ECB, which is comfortable that the amounts involved are small enough not to be systemically significant. Try not to laugh or vomit!! The member nations of the EU have opened up their own Printing Presses!! This is decentralized monetary inflation!! A backstop is at work also. The ECB has been lending money to banks in Ireland at a 1% rate, as long as the banks can put up acceptable collateral.

The volume of domestic loans to Irish banks surged from 95 billion Euros in August 2010 to 136.4 billion Euros in November. The big Irish banks have been totally unable to replenish bank reserves in bond offerings, as they steadily repay their bondholders and meet deposit withdrawals. The EuroCB loans prevented banks that could not raise funds from the private sector running out of cash during the bank run. Some napkin calculations are alarming. The Irish Central Bank money printed has increased by 40 billion Euros in the blink of an eye, three months time. The Irish Economy has a GDP valued at 160 billion Euros. So the nation has printed money equivalent to 25% of its GDP in three months. In US terms, magnified to account for the size difference, the monetary expansion would be the equivalent of about $3.5 trillion in three months, or $14 trillion in a full year. Yet the sleepy desperate broken lost misguided corrupted Euro Central Bank does not consider the volume of monetary inflation in Ireland to be systemically significant. However, price inflation is a growing potential concern for the EuroZone, so they claim. See the Zero Hedge article (CLICK HERE). By the way, the Greek Govt debt is likely to threaten default by summer, nothing fixed. Denials by officials should be deemed confirmations. All PIIGS nations are just buying time, broken to the financial core, making all the more urgent the need for a New Nordic Euro.

◄$$$ THE EURO CENTRAL BANK HAS PROVIDED THE GUIDING LIGHT FOR MONETIZATION, WHICH IRELAND FOLLOWS. THE EUROCB HAS RAMPED UP BOND MONETIZATION, BUYING TOXIC SLUDGE WITH NEWLY PRINTED MONEY. EXPECT A GRAND RAMPUP IN SUCH MONETIZED DEBT ACTIONS THIS YEAR. $$$

The EuroBond monetization parade continues apace. The Euro Central Bank purchased a whopping 2.313 billion Euros in sovereign bonds during the week ended January 17th. That brought the total purchases under the SMP program to 76.5 billion Euros. The trend had gone dormant, but was revived suddenly, as a 20-fold jump was seen in such monetization activity from the measly 113 million Euro debt monetized the previous week. The lull can be directly attributed to the mistaken and highly delusional viewpoint that PIIGS sovereign debt would sell in ordinary bond auctions in a normalizing market. The consensus had suddenly turned optimistic to believe a bond market implosion would be averted. What an inane assumption!! Put the volume in perspective. The total debt monetization last week was the second highest weekly amount since July 2010, bettered by the 2.667 billion EuroBonds purchased in the week ending December 13th. That week was marred by Ireland entering the soup. See the Zero Hedge article (CLICK HERE).

◄$$$ EUROZONE PRICE INFLATION HIT A 2-YEAR HIGH IN NOVEMBER. THE UNITED STATES, ENGLAND, AND EUROPE ARE ALL SUBJECT TO EXTREME PRICE PRESSURES. THE EUROSTAT TEAM MUST LEARN FROM THE USGOVT ON LYING MORE EFFECTIVELY. $$$

EuroZone consumer prices rose 0.6% from November, pushing the year-on-year rate up to 2.2%, the highest annual rate since October 2008. At that time, it stood at 3.2%, all data from the European Union Eurostat statistics agency. During a time when a full year of sovereign debt distress has plagued Europe, the advent of price inflation comes as very much unwelcome. The Euro Central Bank is boxed in. The EuroCB and the IMF, its facilitator, must continue to print money, to bail out banks, to prevent debt default, and to prevent a run on the banks. Yet their initiatives and grand efforts stoke price inflation, despite all propaganda and crude deceptions to the contrary. Claims that price inflation remains relatively low are widely doubted. The EuroCB is far more sensitive to price inflation than the US Federal Reserve, which maintains a dual mandate that includes labor market optimization. As the EuroCB continues to print more money in bailouts of the PIIGS debt, they add fuel to the inflation fire. As Robert Wenzel wrote cleverly, "If they stop printing, the PIIGS become bacon." See the brief Economic Policy Journal article (CLICK HERE).

COMMODITIES IN THE CROSSFIRE

◄$$$ THE COAL SUPPLY LINE FROM QUEENSLAND AUSTRALIA HAS BEEN DISRUPTED, PROBABLY FOR SEVERAL MONTHS. CHINESE, JAPANESE, AND KOREAN FACTORIES WILL BE DEEPLY AFFECTED. THE IMPACT HAS NOT BEEN FULLY FELT, BUT IT WILL BE ENORMOUS AND ENDURING OVER TIME. THE PRICE IMPACT ON COKING COAL WILL BE STRONG. THE AUSSIE ECONOMY WILL SUFFER DAMAGE, EXTENDING EVEN TO AUSSIE PROPERTY PRICES. $$$

The worst floods in half a century in the coal-rich northern state of Queensland in Australia will soon have a significant impact on the commodity driven economy Down Under. Exports have been interrupted. The principal destination of China lies in the cross hairs of deep disruption. Donald McGauchie is a central bank board member and Chairman of Nufarm, the nation's largest supplier of farm chemicals. He assessed, "On what can be seen at the moment, there is very substantial damage to infrastructure. The consequences to export income could be quite substantial." The word severe is actually an under-statement of the damage, which is certain to last for several months. The flooding of the coal mines is nearly total. Record rainfall triggered flooding across an area of Queensland, an expansive state the size of France and Germany combined. Towns have been evacuated, mines closed, and crops spoiled. The giant state is Australia's largest coal exporter and accounts for about 20% of the nation's A$1.28 trillion (=US$1.29 trillion) economy. The Reserve Bank of Australia will next meet on February 1st. The flood and consequent damage to economic flow will be the primary topic. See the Bloomberg article (CLICK HERE).

The fallout will be global, with China hard hit. The Queensland floods will have a significant long-term effect on the global steel industry. Fully three quarters of the state's coal fields are flooded, crippled for operations. This territory is critical to the global steel industry, since it exports a significant portion of coking coal needed to forge the metal. About 37% of the world's traded coking coal is affected, according to Macquarie. However, it accounts for the majority of premium hard coking coal supply. Railway lines that convey the coal to ports for export have also been flooded. Steel analysts are currently equivocating and vacillating, debating over the full impact. They question the length of time for the floods to continue, as well as the size of the coking coal stockpiles held by steelmakers. Word to me from NoelCC, an intrepid Hat Trick Letter subscriber from the region, that the floods will not abate for at least four to six months, and the rain continues relentlessly. Flooding has also affected thermal coal, the type used by power stations. It has seen price rises to the highest level in over two years. Thermal coal at the port of Newcastle in Australia's New South Wales serves as the benchmark for Asia. What is certain is the temporary crippling economic impact. My view is that the sequential dominos are lined up to damage the Aussie Economy, followed by the Aussie property market, still in somewhat of bubble valuation upheld by strong commodity based cash flow.

The price of Queensland coking coal has risen by 10% quickly, from $225 to $253 per ton in the past three weeks. In 2008, during the last serious flooding, prices peaked at $305 per ton. Much higher coking coal prices will come, since the market was already tight. The shortage will lift the price, as producers scramble for coking coal. Some benefit might come to US coal producer from new demand. Prices should rise to $270 per metric ton for three month contracts starting April 1st, the result of the inherent threat to remove 10 million tons of metallurgical coal out of the market. Such is the opinion of Colin Hamilton, a London-based analyst at Macquarie Group. Analyst David Brennan from Daiwa Capital Markets expects coking coal prices may jump to $300 per ton. The flood impact prompted BHP Billiton and Rio Tinto Group to declare a force majeure, a legal clause that allows mines to miss deliveries without legal consequence or incurred damages.

Steel producers, including Nippon Steel and JFE Holdings from Japan, are left with a tripled price on annual contracts to about $300 per ton. Also, Taiwan-based China Steel no longer will see 80% of its coking coal supply come from Australia. It has announced an appeal to the spot market for alternative supplies. The Queensland floods have also damaged wheat crops in the state, but the state only accounts for 5% of Australia's wheat exports. Given the status of Australia as the world's fourth largest wheat exporter, global prices of the grain have risen in response. The unusually heavy rain is a nationwide phenomenon, hitting other Australian states enough to affect crop quality. In early January, high protein wheat futures in Kansas City and Minneapolis hit two-year closing price highs. The other main crop in Queensland is sugar cane, in addition to significant amount of fruits, vegetables, and dairy products. Economist Helen Kevans at JPMorgan has released an estimate of the flood impact, an estimated reduction of the Australian GDP by 0.4% at least. My gut tells me that figure is low, due to conservative tendencies and absence of accounting for ripple effects. Watch property prices tumble in turn. See the British Broadcast Corp article (CLICK HERE) and the Bloomberg article (CLICK HERE).

NoelCC from Australia made a conclusion comment, after passing word before this major story hit the international news wires. He wrote, "Everything is BIG in Queensland, an area equal to Texas and Oklahoma combined. It is completely underwater. This is a genuine Black Swan event. No coking coal, no steel, no iron ore, no Japanese or South Korean manufacturing. The Chinese steel industry is in there significantly too. It buys a lot of Queensland coking coal. Those big Maersk ships on seaborne trade aint going nowhere, mate! The lean and mean Asian pipelines will be tested. We will soon see how large their stockpiles are. The Queensland Government just recently offloaded and privatised the whole of its freight (coal) rail entity. The stock market paid A$5 billion for QR National. Now those pension funds have to cough up at least another A$billion to repair all those washed out lines, all the while earning nothing with the mines under water. It breaks your heart to see all those multi-million dollar draglines under sixty feet of water and busily rusting. This happened in 2008 and it cost the mining companies a packet back then too. Took them months to get back to normal production. That is Free Trade Comparative Advantage for you! You exchange productivity for redundancy. The system works faster but is more fragile. And now, it has crashed. Australia is a three trick pony: iron ore, coal, and gas to China. Two out three IS bad! We are all ruined,

What are they going to do? It is going to cost $5 billion plus to reconstruct. The costs are so large they are affecting the national numbers. It is only the start of the rainy season. What if there is another big dump by April? All the work will be washed away. They might have to leave it until May when the weather fines up. I doubt whether they have got two shots in the locker. Will they leave the repair to those coking coal mines and the railways to the coast until May? How will the NE Asians receive that bit of news? What is the point of buying iron ore if you cannot obtain coking coal? I bet the NE Asians are feeling horrified at having become so dependent upon a single supplier nation. They are in policy chaos today. Rod Argus (Chairman BHP) thought he was so smart, locking in NE Asia. These floods have thrown his strategy into chaos. Australia is also in policy chaos today. The Queensland coast is a happy hunting ground for hurricanes (cyclones) over our summer! As if the floods were not enough! The Bureau of Meteorology has predicted that QLD will receive one monsoon per month until autumn, not including the cyclones."

◄$$$ THE BALTIC DRY INDEX REVEALS THE SPECULATION, EVEN DEMAND FOR DELIVERY. ITS DECLINE INDICATES NO STRONG REBOUND IN THE GLOBAL ECONOMY, AND VULNERABLE COMMODITY PRICES. WIDESPREAD STOCKPILING OF COMMODITIES MIGHT BE NEAR THE END OF CYCLE, AS PROTECTION AGAINST THE USDOLLAR. A COMMODITY PRICE CORRECTION IS LIKELY, OUTSIDE THE GOLD & CRUDE OIL LEADERSHIP SPOTS. THE NATURAL COURSE OF EVENTS IS FOR HYPER-INFLATION TO SPREAD LIKE WILDFIRE, RAISING ALL COSTS. $$$

Gold and the commodities are showing a divergence against the Baltic Dry Index. The BDIndex has fallen by half since last summer. The important shipping cost index measures the rates to charter giant ships that carry iron ore, coal, grains, sugar, cotton, cement, lumber, and other items. The BDIndex is falling noticeably. Given that most commodity prices are near record highs, this trend is surprising and should issue warning. Anthony Stills wrote, "The BDI is an accurate reflection of demand. Therefore I have to wonder if the commodities market is not pricing in some sort of severe supply shortage. The other explanation is that the commodities market is pricing in inflation, while the BDI is pricing in deflation. The Chinese are buying cars like crazy, so the demand for oil and gas should be on the rise. Like gold, there is less supply every day, so the price should be on a real rush higher but it is not." Stills falls into the trap of using inflation and deflation as terms without defining either. They are the most used and abused terms in economic and financial analysis. See the fine article entitled "Gold, Commodities Divergence Against Baltic Dry Index Trend" by Anthony Stills of the Able Speculator (CLICK HERE).

Here is what might be occurring, a great crosswind, a great collision, working toward climax. The global monetary system is crumbling and fracturing in unmistakable manner. The reaction has been to seek protection with monetary hedges in the form of commodities. The leading pair are Gold (for financial purposes) and Crude Oil (for commercial purposes). The many other commodities are legitimate but secondary in their effective role to hedge against currency debasement. However, an inflationary depression is well underway. Economic activity is sliding backwards, as most claimed growth is actually mislabeled price inflation. Prices are rising, as activity is falling, and confusion reigns. The stockpiles of commodities have been growing for over a year in reaction to the ongoing endless global financial crisis. The crisis is so engrained and such a fixture that GFC is understood as an acronym to describe it in the financial press. My belief is that the stockpiling has finished an important phase, whereby storage facilities are largely full. Even China has announced it is nearly finished storing silver concentrate. But Gold and Crude Oil are different entities, special as major currency hedges. So perhaps is farmland, since it produces food. Perhaps also forest land, since it produces lumber. In an inflationary depression, cash is king. But in the current environment, great debate has been churning to decide what is money. The events in the US, Europe, and UK provide a stark spectacle that demonstrates how the USDollar, the Euro, and the Pound Sterling are not money at all, but actually denominated debt. Their governments are debasing those currencies (mandated legal tender), proving that the rising debt supply has a coincident rising money supply.

The conclusion is that today's money is actually debt, and if we are to survive this calamity, we must find true money. It is clearly Gold, and for commercial purposes, effective protection is offered by Crude Oil. The climax events will usher in hyper-inflation. With rising commodity costs and foodstuff costs, the entire USEconomy and global economy will suffer a gradually worsening cost shock. In the United States particularly, they will call it all growth, since they commit monumental lies on what is price inflation. A giant cost squeeze is in progress, certain to intensify. It will make much more acute the current economic recession. The galloping effect will be global. Higher costs squeeze corporate profits and household budgets, which remove investable and spendable income, thereby reducing employment. A powerful global recession is here, much more noticeable and aggravating by next year. As no solution is pursued, as no reform or debt restructure is pursued, as the responsible maestros are not pursued for prosecution, the system continues to hurl out more phony money, issue more debt, redeem more failure, and pressure the entire limits of the system. The reward will be hyper-inflation, since it is the requisite event from all the futile actions. The spillover has begun. If price structures within the economies do not rise, then businesses will shut down. The system is breaking. The ultimate climax event is the USTreasury default, the UKGilt default, and the EuroBond default. They will come like night follows day.

 

◄$$$ THE RUSSIA-CHINA OIL PIPELINE HAS OPENED. RUSSIA IS THE #1 OIL PRODUCER. CHINA IS THE #1 CONSUMER OF ENERGY. A NEW PHASE HAS BEGUN IN LARGE SCALE ENERGY TRADE. SETTLEMENT WILL OCCUR OUTSIDE THE USDOLLAR FRAMEWORK. $$$

The Russia-China oil pipeline has opened. The first oil pipeline has begun operations linking the world's largest oil producer Russia, and the world's biggest consumer of energy China. The pipeline runs between Siberia and the northeastern Chinese city of Daqing. Rapid growth in oil exports between the two countries will be enabled. Until the pipeline inauguration, Russian oil has been transported to China by railway. The Russian network of pipeline grid network for oil exports has so far been directed towards Europe, since concentrated in western Siberia. The estimates are for Russia to export 15 million tons of crude oil annually through the new pipeline over the next two decades, equal to 300 thousand barrels per day. The project cost $25 billion and was partly financed by Chinese loans. Commodity rich Russia focused on construction and supply, and cash rich China the financing. In year 2009, Russia overtook Saudi Arabia as the world's largest oil producer, without much fanfare or attention. In 2010, China surpassed the United States as the world's largest consumer of energy. The start of a new cooperative phase in China-Russia energy trade has taken root. Russian Prime Minister Vladimir Putin expects the pipeline to be a significant factor for Russia to diversify its exports. A second stage of construction on the oil pipeline continues in construction, due for completion by 2014. The entire pipeline will then span a distance of about 4700 kms (=2900 miles). See the British Broadcast Corp article (CLICK HERE). In the last couple months, a currency swap facility has been constructed between Russian Rubles and Chinese Yuan after much planning and effort. Expect it to be used heavily in their bilateral crude oil trade.

◄$$$ IRAN & INDIA AGREE TO SETTLE CRUDE OIL TRADE OUTSIDE THE ASIAN CLEARING UNION, NO LONGER IN USDOLLARS, PROBABLY IN IRANIAL RIAL CURRENCY. THE DEAL CAME TWO MONTHS AFTER THE OBAMA TRIP TO INDIA, WHERE PROMISES, LIPSERVICE, AND SMILES WERE THE MAIN COURSE. $$$

Iran and India have resolved a crude oil trade dispute. Deputy oil minister Ahmad Khaledi said that the dispute had been settled by changing the currency for payments, according to the Fars news agency in Tehran. The deal was struck in Mumbai, where meetings included central bank officials from the two nations. In late December, the  Reserve Bank of India (RBI) halted oil trade payments to Iran, no longer to be settled using a longstanding clearinghouse system run by regional central banks, called the Asian Clearing Union (ACU). Furthermore, the RBI extended the move to apply to all current account transactions. The Iranians had refused to sell oil outside that system. The accord is centered on an agreement, whereby India and Iran could agree to settle contracts and payment in Iran's rial or another currency instead of the USDollar, claims the Indian Oil Secretary Sundareshan. Payments could also be routed through a third country and its central or commercial bank. The Iranian Govt requires that India guarantee payments for such transactions by the Reserve Bank of India, which refuses any more settlement within the Asian Clearing Union. India purchases 400 thousand barrels per day of Iranian crude oil, worth $12 billion annually. The payments had been made to Tehran via the ACU under a system created in the 1970s by central banks in South Asia and Iran. That will change. The ACU includes the central banks of India, Bangladesh, Maldives, Myanmar, Iran, Pakistan, Bhutan, Nepal, and Sri Lanka. The Obama trip in November included a message in the discussions: to stop dealing with Iran due to its nuclear program. The RBI announcement and the new deal with Iran came less than two months after Obama's trip to India. He had pledged to help boost the global role of New Delhi. Maybe lips moved and words were uttered, in attempts not to anger the USGovt. See the Payvand article (CLICK HERE). Thanks to DavidA of Iranian descent for this piece, as well as his recent perspectives on Iran's history from his current Los Angeles location.

◄$$$ SPECULATION HAS RUN WILD. IN MY VIEW THE RABID MOTIVES ARE JUSTIFIED. HUSSMAN WARNS THAT RISING LONG-TERM INTEREST RATES REMOVE A PILLAR BEHIND THE COMMODITY TRADE. BUT GOLD IS NOT A COMMODITY, RATHER MONEY. ALSO, CRUDE OIL IS A LONGSTANDING HEDGE AGAINST A THREATENED CURRENCY SYSTEM. AS MONEY FLEES THE FALSE SECURITY OF USTREASURYS, IT FINDS GOLD!! THE MAIN THREATS TO GOLD ARE A CHINA BUST OR WESTERN ECONOMIC MAJOR STUMBLE, WHICH WOULD URGE TAPPING REAL MONEY SOURCES. $$$

John Hussman gives warning to a USFed-induced speculative extravaganza. He makes worthwhile points. Investors should pay heed, and fully evaluate their strategies. Some of his many excellent points follow. He wonders why USTreasury Bond yields are rising even though the USFed has been purchasing over $100 billion per month, and has made public commitments to purchase a total of $600 to $700 billion more. My conclusion is that the US bond investors are stepping aside as they observe in shock & awe in monetary expansion, and that foreign investors are disgusted by the reckless abandon of the USGovt and USFed in debasing the USDollar. They all observe a gigantic bond bubble creation. Hussman warns that money velocity is the gauge to watch closely. If and when sudden declines come from changes to the monetary base, the money velocity could collapse. That always means a powerful economic recession that requires very quick action to avert a disaster. The induced bubbles in USTreasurys struggle as a guiding light for stock market vaulations. He points to Andrew Smithers who claims US equities are more than 70% overpriced. Hussman warns that the commodity trade is at risk since its major support plank is the falling USTreasury yields. It has been removed, as yields are rising. In my view, this is the wrong conclusion regarding commodities. The crumbling ruined monetary system is the catapult for commodities, led by gold & crude oil. In the absence of a legitimate basis for the monetary system, the investment community seeks its own substitutes. Gold is not a commodity, but rather money. My forecast is that many other commodities will fall in price eventually, but to a much lesser extent Gold & Crude Oil. Fleeing money will find Gold & Crude Oil. They are the primary medium of exchange in a perfect world in the financial realm and the commercial realm. Later on, it is very possible that the crude oil price will falter from lower global demand, continued production, and a swarm of floating storage vessels. Then much later still, the gold price will stabilize after new monetary platforms are constructed atop gold. See the Hussman article (CLICK HERE).

Hussman is an excellent analyst, but he seems to overlook a primary principle, a major tenet of great importance. As money flees the super-bubble in USTreasurys, the greatest swindle in claim of containing wealth, it seeks the legitimate sanctuary of Gold where bonafide money is stored. As the great migration from USTreasurys to Gold continues apace, the long-term bond yield will obviously rise. The nemesis to Gold is surely the USTreasury. In normal times, a rising bond yield will attract greater funds from strong niches and sectors, including Gold. But these are not normal times. Hussman is using normal times type of thinking. The global monetary system that rests atop the sovereign debt market is breaking down gradually and dangerously. A rising bond yield does not so much divert Gold money, but instead warns in this historical climate that the monetary system is collapsing. The final climax event is the USTreasury default. He does not factor such a crescendo into his analysis. My view is he therefore gives an errant warning, overlooking the crumbling monetary system and its enormous consequences. To be sure, a China bubble bust wave or a Western economic stumble into sudden recession would deliver a shock to all financial markets. But a rising USTreasury Bond yield is not the dire warning signal. Instead, a China bust or Western stumble are the developments to watch closely. A black hole of lost money would send the world scurrying to locate real money, to withdraw from its wellspring, and to seek survival. That would push down the gold price from basic redemptions for cash starve needs.

GOLD INTRIGUE MOUNTS

◄$$$ WORLD BANK HEAD ZOELLICK REAFFIRMS THE VIEW THAT GOLD CAN SERVE AS A MONETARY SYSTEM REFERENCE POINT. AFTER THE PASSAGE OF TIME, ENOUGH TO INVITE REBUKE OR DEMAND FOR SILENCE, ZOELLICK HAS REPEATED HIS POINT OF VIEW IN SEEMING DEFIANCE. $$$

The head of the World Bank reaffirmed that Gold has a potential role as reference point to monetary system reform. With the Elysee Palace in Paris as backdrop, Robert Zoellick said "What I suggested is that gold serves as a key reference point to allow people to assess the relations between different currencies. It is an approach that we can take. Others also estimate that we can establish a benchmark against prices of principal commodities. I did not propose a Gold Standard, which is an important distinction because it would directly link currency to gold. The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values." Implicit is precisely what he has denied, a return to the Gold Standard after a disastrous course of events with the present monetary system, often called Bretton Woods II. He described the main function of a Gold Standard, then denied the meaning of his descriptions. Interesting!! Many analysts have regarded his proposal to revive the role of gold in guiding exchange rates as a shock wave to ongoing spasmodic wrangling over the international monetary system. The Gold Standard  is a system in which the standard economic unit of currency is given value against a fixed weight of gold. The Bretton Woods fixed exchange rate regime was abandoned by Nixon in 1971, when the United States unilaterally terminated the USDollar convertibility to Gold. My view is that the Vietnam War costs forced the issue, along with the birth of the US socialist system. See the Quote article (CLICK HERE).

◄$$$ RICKARDS COMMENTS ON THE UPCOMING GOLD STANDARD. IT WILL BE DIFFICULT TO IMPLEMENT, AND REQUIRE MUCH TIME AND PLANNING. BUT THE ALTERNATIVE IS MUCH WORSE, INVOLVES DISORDER AND VIOLENCE. SOCIAL REACTION WILL NOT BE TAME. NEVER IS IT CALM WHEN FOOD PRICES SOAR. THE ONLY ITEM THAT EVOKES A MORE VISCERAL RESPONSE THAN ENERGY IS FOOD. $$$

USFed Governor Hoenig shocked many observers in the first week of January when he stated, "The Gold Standard is a very legitimate monetary system. We are not going to have fewer crises necessarily. You will have a longer period of price level stability, but I do not know that you will have lower unemployment. I do not know that you will have fewer bank failures." The battle lines have been drawn on this debate. Thus a second figure of some prominence has publicly joined the World Bank President Zoellick in suggesting a significant role in the use of gold in the monetary system. The Gold Standard accomplishes many things. It removes from the Wall Street barons their potential for massive $trillion fraud, even massive bond and currency counterfeit. It removes the banker ruling elite from controlling swings in the credit cycle for private exploit. It removes much of the risk from excessive debt, which can actually cause systemic default. It prevents a nation from living far beyond its means. The USEconomy suffers from all the above maladies and scourges. Eric King pointed out how price stability from a Gold Standard can prevent the soaring costs of basic foods, and social unrest that results. Food costs have now eclipsed 2008 levels. The status quo, the current pathway involves social disorder, violence, and failure of the current monetary system. We are seeing it in spades. A Gold Standard is coming to the United States, and the USGovt can cooperate and follow constructively and willingly, or kicking and screaming as Jim Rickards has warned in the past. See the King World News article (CLICK HERE). Debate is moving to center stage!!

Jim Rickards from Omnis has worked with the USFed and the USDept Treasury for four decades in consulting services. He said, "What Hoenig has done, as Robert Zoellick did before him, is to legitimize the debate. This is not the last word on gold and there is a long way to go both intellectually and mechanically before we get to a Gold Standard. What is important is that the discussion is now out of the shadows and in the main arena. It will take on a life of its own from here with participation from many sides. Hoening may have lost his vote on FOMC but he has not lost his voice. Hoenig and Zoellick are not stalking horses for Bernanke and the Board of Governors. An honest debate about a Gold Standard is the last thing Bernanke wants. However, because of speeches like Hoenig's and the new prominence of Ron Paul in the Congress, this debate is now taking off whether Bernanke likes it or not. He will not be able to contain it. The battle lines are being drawn between honest gold backed money and fiat money. The G20, IMF, central banks, and most academic economists are on the side of fiat money. The citizens, certain honest intellectuals, and a few economists are on the side of gold. Let the games begin. Hoenig is right that even with a Gold Standard, there will continue to be business cycles with occasional periods of higher unemployment and bank failures. But it is not as if fiat money has avoided those calamities. From the severe recessions in the 1970's and 1980's, the sovereign debt crisis of the early 1980's, the stock market crash of 1987, the recession of 1989-1990, the bond market crash of 1994, the LTCM collapse of 1998, the tech bubble crash of 2000,and the Panic of 2008, it is not as if it has all been smooth sailing under fiat money. It is hard to see how gold could do worse, and history says it will do much better.  One need only look at inflation, unemployment, and economic growth in the period 1870-1914 versus 1971-2010 to see the clear beneifts of gold which seems to produce both consistent growth and low inflation, notwithstanding occasional business cycle volatility.

Well, as I have said before, there is more to a Gold Standard than just snapping your fingers and wishing it to be so. It will require a lot of study, a lot of planning, and a lot of technical work to execute. One clear implication is that given the amount of money printing in recent years, a much higher price of gold is required to create an equilibrium between the current money supply and the amount of official gold available to support it. Estimates of that higher price can vary over a wide range depending on what definition of money you use and what gold to paper ratios you require. My own analysis indicates a range of between $5000 to $11,000 per ounce of gold, and of course some estimates are much higher. Commodities are not just the playthings of speculators or mere industrial inputs. In many cases, commodities are actually food and their price volatility represents the difference between a steady diet or starvation for billions of people. If a Gold Standard contributes to lower volatility in food prices and fewer price related supply disruptions, that is a social good over and above any economic good that is created." Very impressive how the topic of a Gold Standard has filled the vacuum. It is the solution, but not a panacea. It is a fair equitable legitimate orderly process that bankers despise. The Gold Standard implementation would plunge the United States into the Third World rapidly, since the US is deeply indebted and suffers from massive deficits, both fiscal and trade. Mandatory proper accounting would force the USEconomy and banking system toward balance by means of price mechanisms and credit removal, the tickets to the Third World. Massive price inflation, huge shortages, deceased banks, shuttered businesses, and legions of poor wrecked desperados would be the rule of the land in the broken United States of America.

◄$$$ REPORTS FILLED WITH INTRIGUE HAVE SURFACED ABOUT CHINA SILVER ACCUMULATION. THEY MIGHT HAVE TAKEN SIGNIFICANT SILVER SHORTS IN PAST YEARS. THEY MIGHT BE PLANNING TO RENEGE IN THE NEXT COUPLE YEARS, TO BETRAY WALL STREET COUNTER-PARTIES AS VENGEANCE. THE CHINESE WANT THE LOWEST POSSIBLE PRICE FOR LARGE SCALE ACQUISITIONS. MOTIVE MIGHT BE ESTABLISHED FOR CHINA TO OBTAIN MOST FAVORED NATION STATUS IN 1999, AS THEY SUPPLIED GOLD & SILVER TO THE USGOVT & WALL STREET. BUT WALL STREET SOLD THE SILVER OWNED BY CHINA, IN VIOLATION OF CONTRACTS, A BETRAYAL. BEIJING IS VERY ANGRY, AND HAS SET OUT TO EXACT VENGEANCE. $$$

Nothing at all is clear. The Deep Threat in London had let it be known that the Chinese (Asians in his reference) were no longer going to chase the silver price and push it up. They intended to pursue a plan that permitted the falling silver price to come down to meet their mass of buy orders. They wish to obtain the best possible low price for the huge silver buy orders, and will hestitate to chase the silver price upward. If the paper silver market will provide cheaper silver bars, then so be it!! A mammoth exodus of silver bars at the COMEX and LBMA is in progress. Already, significant increases have been observed and monitored in silver bar outflow from the exchanges.

Through most of the 2000 decade, it was rumored that China was shorting silver in the futures arena in order to keep down the silver price, as they built gigantic stockpiles for strategic purposes. They might have wanted to avoid a price runup during their enduring controlled accumulation. Then last summer, the Chinese announced they had finished their silver accumulation. The runup in the silver price since August might confirm convincingly that China had indeed finished building their silver stockpile. The Chinese Govt actions regarding rare earth metals seem to be in perfect synch with the absent obstruction to push price upward. The Chinese are in the process of giving a big FU (flip the bird) with contempt to the USGovt, if not to the British also. The other side of the equation is that many analysts expect the Chinese will renege on their massive short positions in a well planned war maneuver. They are totally fed up with the constant bombardment of currency manipulator accusations, when the worst offender is the United States. The counter-party long in silver for their contract positions would be Wall Street firms. A possible grand setup might be in progress. The Wall Street firms would not benefit from their long counter-party position if the Chinese renege on their losing short positions. The Chinese might be pushing down the price without risk. The size of the silver shorts being built by China might be equivalent to past metal loans conducted years ago, in a bilateral giant loan contract in which the USGovt violated the terms. This is the great hidden missing piece. See the theory expounded by Harvey Organ that makes a great deal of sense.

What might be shaping up is a major global monetary attack done by China against Wall Street, which essentially controls the USGovt. Recall in September 2009 when Beijing announced they would renege on derivatives generally. The message was received with consternation and confusion, followed by ignorance and indifference. That is when some speculation came about their silver shorts as the rear guard massive attack. They might have shorted silver in order to acquire vast supply for building stockpiles, with perhaps every intention of leaving Goldman Sachs and JPMorgan as principal bagholders unable to collect as counter-parties on the large scale $billion losing positions. Such a plan would center on replenishment of what was lent to the USGovt. They are clever. They are warriors. Then study Sun Tzu. For background, conjecture, analysis, curiosity, information, and more, check the Seeking Alpha article (CLICK HERE) and the Ted Butler article on Silver Seek article (CLICK HERE). This story will unfold slowly, through evidence and leaks.

Harvey Organ has assembled a sequence of historical events in a theory wrapped in intrigue, with deals struck, gold changed hands, silver finally swapped, betrayals committed, counter-attack actions by China with fierce implications. Here is his account, almost verbatim, which seems very plausible. The major problem was depleted gold in Fort Knox and depleted silver US stockpile. The USGovt depleted its vast silver stockpile assembled by President Teddy Roosevelt shortly after 1900. He recognized the strategic importance of silver and built a six billion silver ounce stockpile. Chairman Mao TseTung inherited vast gold and silver bullion supplies as part of the Chinese Communist Revolution. The Organ theory fits to explain the insane suicidal treaty to grant Most Favored Nation status to China in 1999. The United States wanted its Gold & Silver hoard, a deal struck by the Clinton-Rubin Admin. They sold the American treasure, then motivated the next global empire by borrowing its gold treasure, then squandered it. The gold was handed over quickly, but the silver was handed to the Americans only after year 2000, in the form of a swap contract. The betrayal came when the Wall Street fraud kings sold the Chinese gold under lease contract. The Wall Street sold the Chinese silver without authorization!! Imagine somebody selling your beachfront house when rented. The irony of the USTreasury being the home of staggering debt, and not gold, is astounding.

Friction has grown acute, ready to boil over. The Chinese are so angry that they are motivated to play the dirty game in vengeance. They are using long silver contracts to convert to delivery of physical silver bullion, that much certain. They are possibly preparing the day with full intention of reneging on a large silver short position, which would leave Wall Street holding the vacant counter-party position (a highly suspected theory). This is geopolitical chess and hidden war. Recall that China officially has over 1000 tons of gold bullion. They also built a silver stockpile of unknown size, a state secret. The Organ theory makes a great deal of sense, with some missing elements and details, but a firm plausible framework sketch. The big picture has China attempting to convert their accumulated USTreasurys into Gold & Silver, from unwanted paper to desired bullion metal, thus unwinding the grand contract that the USGovt violated. See the Cafe Americain article by Jesse (CLICK HERE).

Organ went on to summarize in brief format the sequence of events, his theory and interpretation. JPMorgan might soon be compelled to open its swap contracts books for the world to see the trades. Organ has contended all along that the real short position owner on silver is not JPMorgan or HSBC, but rather mainland China. The United States needed a hoard of silver supply to complement the banking gold supply years ago in order to keep the suppression scheme alive. China had about 300 million oz of silver inherited with the Chinese Revolution in 1949. The gold was sent by air freight to Taiwin (69 tonnes) but the silver remained in Shanghai and Beijing. In 1990 the US had two billion oz of above ground silver, and by 2003 that supply went to zero. They needed the Chinese supply desperately. Thus China entered the deal room.

Here was their supposed deal. On or around the year 2000 and events leading up to now:

1.      USA gave most favoured nation treatment to China.

2.      China lent silver in a swap position. China received dollars as collateral and USA obtained the silver.

3.      China can opt for return of their silver back at any time, say past 3 or 4 years.

4.      China loved the deal as they acquired gold on the cheap.

5.      Here in 2011, China wants its silver back, but the USA has informed them that the silver is gone. China can keep the US$ in collateral though.

6.      China has refused and is extremely angry. They are massively short on the COMEX, knowing that the USA will not supply the metal. It is up to the bankers.

7.      China has used conduits on the buy side to take delivery.

The method used is brilliant, a rollover of cash sales on losing short silver contracts, to finance the next round of long contracts secured for delivery. The plan could allow the Chinese to quietly drain physical silver metal inventory at the COMEX without spiking the market price of silver. They hold their long contracts to maturity and take delivery of the physical silver, while selling their short contracts before maturity for cash. These are the same shorts piled up during the acquisition of their stockpile last decade. Then they use the proceeds to buy more short contracts with maturities further into the future in forward rollovers. The money lost on the paper shorts as the silver price gradually climbs could be regarded as additional acquisition cost on the long contracts converted to silver bars. Besides, the USTreasurys held ten years ago are worth much more, since the bubble grew tremendously, yields falling toward 0% on the short end and 3% on the long end. The opportunity with large short contracts seems easily lodged within the HSBC bank position without a fuss. The Chinese have accumulated nearly a $trillion worth of USTreasury Bonds, and another $trillion worth of USAgency Mortgage Bonds, all of which pay a yeild far below market rate of interest. When the USDollar, British Pound, and Euro implode from overprinted debasement, the global crisis will force the creation of a new reserve currency. China will be prepared, but the US will fall into the Third World.

The Sound Money Axiom dictates that trust in a replacement for the current fiat paper global reserve currency will only come with a hard asset currency, not another from unbacked fiat paper. By accumulating a huge cache of Gold & Silver, the Chinese will be prepared to back the Yuan with traditional historical monetary metals. One should anticipate when the world's oil exporters will demand payment in hard asset currency eventually. China imported 209 metric tons of Gold during the first ten months of 2010, compared to 49 tons imported in the full year 2009. Even as the world's foremost gold producer, they exported no gold in 2009. The Chinese have a long established cultural affinity for silver. Silver was once used as a currency in Guangdong in the year 1423 when it became legal tender for payment of taxes. Provincial taxes had to be remitted to the capital in silver after the year 1465. In 1914, the National Currency Ordinance established the Silver Dollar as the national currency of the Republic of China. See the Seeking Alpha article (CLICK HERE). Also, see the well-done video explaining the JPMorgue silver price manipulation and Chinese cooperation (CLICK HERE).

◄$$$ THE U.A.E. ROYALS BOLSTERED THEIR PRECIOUS METALS CREW, AS THE PERSIAN GULF GIVES EXTRA EMPHASIS TO GOLD IN RESERVES MANAGEMENT. THE PERSIAN GULF IS SETTING THE STAGE FOR EITHER A UNIFIED CURRENCY OR A DIFFERENT GLOBAL CURRENCY. $$$

Gerry Schubert was formerly head of precious metals at ABN Amro in the Netherlands. He resigned in order to take a position at Emirates NBD in Dubai. He will serve as the head of precious metals at Emirates NBD, the largest bank in the Middle East in asset terms. His attention will be focused upon their core physical metals. Schubert has experience in the metals business since 1978. Before his tenure at ABN Amro, he worked at INTL commodities, Fortis Bank Belgium, and West LB. He also also served on the board of the London Bullion Market Association (LBMA). The bank entity Emirates NBD was formed in October 2007, which joined the UAE's second and fourth largest banks, Emirates Bank and National Bank of Dubai. The merger created a bank with the largest asset base in the Middle East. The group has operations in the UAE, Saudi Arabia, Qatar, the United Kingdom, and Jersey, with other representative offices in India, Iran, and Singapore. See the Bullion Desk article (CLICK HERE). It seems apparent that the UAE and Persian Gulf generally are setting the stage for either a unified Gulf currency or perhaps integration of a New Nordic Euro currency with gold foundation. They are preparing for a crisis and aftermath, if not a path to solution.

◄$$$ THE BIG USBANKS ARE MOVING THEIR HUGE PRECIOUS METAL SHORT POSITIONS TO LOCATIONS OUTSIDE THE UNITED STATES. THEY EVADE REGULATORY SCRUTINY AND TARGETED PUBLIC ATTENTION FOR ACTION. A CLEAR PATTERN OF EVASION IS EVIDENT. $$$

While the Commodity Futures Trading Commission considers position limits with no credible basis of action, the big US banks with stealth and craft have begun to shift their illicit corrupted commodity positions to foreign locations, out of harm's way. See the chart of silver short position of the US banks (blue line) and the non-US banks (green line and right hand scale) and all reporting banks  (red line) in the chart below. The trend is clear. The US Bank silver short position peaked at the end of 2009 and has been on a declining trend as shown by the big blue arrow. By contrast, the short position of non-US banks since July 2010 has seen a massive increase in the range of 10-fold!! From 614 contracts in July to 6329 contracts in December, the increase is enormous, enough to offset the decline in the short position of the US banks, which over the same period fell from 31,803 contracts to 26,332 contracts. The big red arrow indicates the combined US and Non-US bank short position. Incorrectly in my view, it points upward when it is essentially flat. Clearly and with defiance, the US Bank silver short position has shifted to locations outside the jurisdiction of the CFTC. Couple this shift with recent propaganda put out by the Financial Times that declared JPMorgan is reducing its silver short position on the COMEX, a claim with no basis in fact. These are diversionary tactics well orchestrated. See the Financial Times article (CLICK HERE).

The defiant crafy maneuver by non-US Banks extends to their gold management. See the chart of gold short position of the US banks (blue line) and the non-US banks (green line and right hand scale) and all reporting banks (red line). The big blue arrow is tapering off, and indicates that the US bank gold short position appears peaked in July 2010. Again the author of the chart exaggerated the turn in the big blue arrow, which is turning flat. It has declined from 161,378 contracts to 135,602 contracts. By contrast, the non-US banks had been gradually reducing their short position from March 2009. Then suddenly in July 2010, they began to aggressively increase their short position in the range of 3-fold!! From 16,798 contracts in July to 6329 contracts in December, the increase is sizeable, enough to offset 40% of the decline in the short position of the US banks. After all the opposing movements, the short position of all reporting banks is on a flat trend as indicated by the big red arrow. The upward thrust shown is also exaggerated.

History tells us that non-US banks have not been important participants in the precious metals markets. The US and London banks are the specialists in contract violation. Their massive increase in short positions in both Gold & Silver is conspicuous. The pressures on the big US banks to avert disaster by covering their short positions makes for international intrigue. They have been embarked on a new strategy in the last several months. To escape scrutiny for price suppression and charges of market manipulation, they are migrating to locations not under the direct supervision of the CFTC. These patterns warrant investigation by the CFTC. See the Market Forecast Analysis article (CLICK HERE). Be careful to note the exaggerated directions of the imposed big arrows, emphais given for effect. Imagine if stock certificate counterfeiters moved offshore to evade scrutiny, or $100 bill counterfeiters, or naked USTBond sellers, or vacant insurance policy sellers, or sellers of Tennessee beach front property, or sellers of the Brooklyn Bridge. A public uproar would follow. The naked shorting of precious metals is not a point of focus for 90% to 95% of Americans, maybe more.

GOLD PRICE CONSOLIDATES

◄$$$ MASSIVE SILVER WITHDRAWALS TOOK PLACE ON JANUARY 7TH. A MASSIVE PHYSICAL METAL DRAIN IS IN PROGRESS FROM THE COMEX. THE CONTRAST TO A FALLING SILVER PRICE IS FASCINATING, AS A MAJOR COMEX EVENT APPROACHES LIKE A SCHEISS STORM. ALSO, THE SPROTT FUND IS HAVING TROUBLE LOCATING SILVER FOR INVENTORY. $$$

Gold has found greater tranquility as compared to silver. The problem is locating the gold required to settle upon all the long contracts that demand physical delivery. The silver situation is far more dicey and loaded with risk for major disruption. Data from a single day in early January is extremely significant. A massive silver withdrawal occurred, unprecedented in the history of the COMEX. Check the details of the huge withdrawals. Four customers (not dealers) withdrew a total of 1.019 million oz from the COMEX vaults. This is actual silver bullion leaving from four registered vaults. The individual withdrawals were 579 koz, 30 koz, 400 koz, 9.8 koz. Surpringly, the dealers (bankers) were also involved in the withdrawal of silver at a volume of 0.770 million oz. Two individual dealer withdrawals were 102.8 koz and 667.8 koz. No other description is suitable for such massive drain of silver, other than a raging fire loaded with great risk of default. The silver withdrawal by both dealer and customer totaled an astonishing 1.789 million oz. This is two orders of magnitude greater than the typical activity. The pipeline demands even more. In addition, COMEX notified that a staggering 323 notices have been sent for servicing, to deliver a total of 1.615 million oz. A side note. Eric Sprott mentioned on King World News that he is having trouble locating silver. It has now been several months since the Central Fund of Canada has added to its inventory of Gold & Silver. Organ believes the Sprott Fund and CEFund have done considerable damage to the banking cartel by removing significant amounts of valuable physical metal from the market, thus exposing the fraud scheme. See the Organ Weblog (CLICK HERE).

◄$$$ NEGATIVE CORRELATION BETWEEN COMEX OPEN INTEREST AND PRICE INDICATES EXTREME SHORTAGES. IT MEANS SIGNALS NO EXIT FOR THE BIG BANKS AND THEIR EXTREME SHORT POSITIONS. OPEN INTEREST GROWS WITH LOWER SILVER PRICE, THE OPPOSITE OF NORMAL PAST ACTIVITY. GROTESQUE SHORTAGES ARE COMING, ALONG WITH A COMEX DEFAULT. THE AMBUSHES TO GOLD & SILVER PAPER PRICES MUST BE MINOR, OR ELSE A GRAND BACKFIRE OCCURS AGAINST THE USBANK SYNDICATE ON STIMULATED PHYSICAL DELIVERY DEMANDS. $$$

The Game Over signals have begun on the COMEX. The cartel of major US and London banks desperately need to cover their short positions. The market will not permit them to do so. A remarkable effect is apparent in silver, and soon perhaps in gold. The Open Interest (OI) versus the Silver Price has a clear slight negative correlation, whereas in the past it had a clear moderate positive correlation. It translates to no releif to the cartel, the big banks, the Boyz, the Syndicate. They big US banks leading the cartel are not given an opportunity to cover their short positions at lower prices, since the OI reduces with higher price and rises with lower price. That is the precise opposite of what the cartel wants, the opposite of past patterns. This is a major signal of significance. The premiums in the physical market show that the bear raids are stimulating massive physical offtake in the form of delivery demands. Thus the predicament of the cartel is made more precarious. The scam of naked shorting to control the fiat US$ currency regime is fast approaching a day of reckoning, even causing a backfire.

See ellipse #5 shown in red in the graph. This captures the Open Interest versus Price data after silver went above the $22/oz level. This most recent ellipse has a downward tilt bias, the opposite of the other ellipses at lower prices. The OI volume goes down with rising price, which means the big US banks are covering their losing short contracts! It means fresh new long contracts are put on the table at lower prices, the next profitable trades. It means the door is shutting on the cartel!! The OI falls during naked short raids, not giving the cartel a window to escape and cover their short positions, nobody to serve as their sucker counter-party. The only conclusion is that existing major shorts are covering their positions as the price rises. Therefore a looming chronic shortage is obvious. The other conclusion is that the naked shorts are buying back their commitments at a loss, and actual owners of silver no longer choose to sell it. The trend reversal from the last ten years is clear as a bell, and a wretched signal for the cartel. A tipping point comes where physical shortages will be more apparent, and COMEX default occurs, complete with lawsuits and prosecution. See the market Force Analysis article (CLICK HERE).

A grand backfire against the cartel is in progress. Ambushes to the silver price from naked shorting provides discounts to the massive Chinese purchase program on the physical side. At this point, the corrupted paper manipulation on price equates to granting multi-$million discounts to the Chinese acquisition. It is a simple concept, working as market vengeance against big US bank Syndicate cartel, which cannot drive down the gold or silver price any lower than they wish to grant significant generous discounts to the Chinese. Practically, they cannot give too big a physical discount, or else they would hasten a default at COMEX and LBMA earlier than the natural course. They do not wish to highlight the preliminary stages to default with deep discounts, since they already telegraph deep distress from the cash settlement that includes a premium bribe. A 20% cash settlement for silver contracts has become standard.

◄$$$ THE USMINT REPORTED AN UNPRECEDENTED BUYING SPREE OF PHYSICAL SILVER, SETTING ALL-TIME RECORDS. PHYSICAL DEMAND IS ZOOMING. MEANWHILE, THE BULLION VAULT HAS RUN OUT OF SILVER BARS IN GERMANY, AND BULLION BY POST HAS RUN OUT OF SILVER IN ENGLAND. THE GLOBAL SHORTAGE WILL BECOME ACUTE VERY SOON. KEEP AN EYE ON THE GLOBAL TREND OF BUYING GOLD FROM VENDING MACHINES, A FRESH NEW CONCEPT. $$$

The USMint already is selling silver at an unprecedented pace. In the first week of January alone, the USMint had sold 2.221 million ounces of silver. The displayed run rate is due to set a significant all-time monthly record. The pace quickened further. In the next three days, their sales volume surged by 50% and reached 3.407 million ounces of silver!! In the first twelve days of the month of January, the total sales already surpassed nine individual months of 2010. See the Zero Hedge article (CLICK HERE). The paper silver price is in total disconnect with the entire physical market, which is on fire. A quick update. Hold onto your hat!! The USMint has announced it is on pace for silver coin sales to establish a 26-year high. As of January 18th, silver sales stood at a whopping 4,588,000 after nearly 1.2 million ounces were sold in a few short days. This represents the biggest monthly total sold by the USMint going back to 1986. The month of January still has 12 days left. In the first three weeks of January, the USMint has sold more silver than in any month in its history according to public records dating back 26 years. See the Zero Hedge article (CLICK HERE).

Finally the silver shortage has struck across the Atlantic. Distributors have run out of both gold and silver on a daily basis for the first time since the sovereign debt crisis befell Europe in May 2010. The BullionVault has announced that it has been depleted of silver in Germany due to heavy demand. Permission to continue the illicit price suppression by the CFTC has resulted in an ongoing window to lower the cost basis for the precious metals acquisition. Demand has not subsided. Simply stated, due to high demand, the silver stocks at BullionVault have been exhausted. They issued a strange public statement, "As we only deal with physical bars which are already in our possession, we are currently unable to offer silver on our own market. Of course, our market is still open to all our clients to act with each other and set their own prices. This situation could lead to buyers and sellers at higher prices. Buyers are asked to check the price again before they confirm their order." See the Zero Hedge article (CLICK HERE). They invite their own account holders to trade among themselves, and determine their own price for trades. How strange!

Probably not last, the United Kingdom has joined Germany in the widespread second round of the global silver shortage. The first wave was the spring and summer of 2010. See the warning by British BullionByPost, notifying clients that the company currently has no silver bars in inventory. Supplies are expected to be replenished later in February. See the BullionByPost website (CLICK HERE).

Retail sales of gold coins and bars is spreading globally. Gold vending machines are coming to central Tokyo. Space Intl Ltd offers gold or silver to the world's biggest vending machine market. Japan comprehends falling prices, salaries, stock valuations, and property very well indeed. The Japanese want real things to invest in with tangible value. The new vending machine sells the precious metal in the form of coins and ingots, with weights ranging from a gram to a quarter of an ounce. Japan is a nation with vending machine mania. It has one vending machine for every 32 people. The nation posted 5.15 trillion Yen in vending machine sales in 2009, about 45% more than the $42.9 billion revenue in the United States. Japan has only 40% of the US population!! The German firm Ex Oriente Lux AG claims to be the first to install a gold vending machine. It operates 11 machines across Germany and five abroad, including in Spain and Italy. TG-Gold-Super-Markt installed its first gold bar vending machine at the Frankfurt airport in June 2009, while a similar machine was unveiled at Abu Dhabi's Emirates Palace hotel in May 2010. See the Business Week article (CLICK HERE).

◄$$$ THE COMEX DEVICE TO OFFER CASH SETTLEMENT BONUS IS UNDER POSSIBLE ATTACK TO EXPLOIT IT. THE EX-JPMORGUE TRADERS ARE ON THE SCENTED TRAIL, MOTIVATED TO HAVE THE BONUS PUSHED UP TO 30%. THE PROFIT MOTIVE FEEDS THE DRAIN OF CASH (IF NOT METAL) FROM EXCHANGE INVENTORY. THEIR TARGET FOR MARCH SILVER PRICE SEEMS AMBITIOUS, GIVEN THE DEVELOPMENTS IN EUROPE THAT INTERFERE WITH THE PRICE RISE. $$$

Some former JPMorgue traders under Blythe's direction have revealed a crafty new tactic for the new year. They have embarked on a fresh scheme to corner the COMEX and drive up the silver price with a hefty force. The COMEX only has 105 million ounces of silver in inventory, of which only 50 moz are available for delivery. These numbers to begin with seem grossly exaggerated. If so, all it would take is 10 thousand contracts on the COMEX to buy up all the claimed available silver in inventory and 20 thousand contracts to deplete it completely. The current front month Open Interest could accommodate the attack. Blythe's former traders are advising major hedge funds and billioniare investors to buy up as many contracts as possible before March 1st approaches, then to deposit the cash needed to stand for delivery for the month of March.

The purpose is not necessarily to bust the COMEX but to force it to pay a premium (some as much as 30%) for cash settlement. A cash drain is in progress. Such contract cash settlement is clearly illegal, but just a small red herring in today's age of gross permitted criminality. If a group of hedge fund managers can organize to bankroll $1 billion in paper silver investments, they could buy more than 30 million ounces of silver. The folks at JPMorgue cannot deliver the silver in that quantity. So a cash settlement is the only recourse, accompanied by pressure to take the cash and not demand delivery. The result would be at least $200 million in profit on a $1 billion investment that in under four weeks. The former JPM traders are advising well funded clients to put on this trade, come the first week of February. These tactics might have contributed to the rise in silver price from $22 in late September to $29 by December 1st. The problem with their argument for a target $45 silver price in March is the deep distress in Europe. Whether stuck in sovereign debt mud and the Euro falling, or relief coming from apparently succcessful PIGS bond auctions, the gold price is either consolidating or plain soft. See the Finance Yahoo message (CLICK HERE).

◄$$$ INVESTMENT DEMAND SHOOTS UP WITH A RISING GOLD PRICE, WHILE THE JEWELRY DEMAND FALLS OFF. A PRIMARY INDICATOR OF A POWERFUL BULL MARKET IS THE DECLINE IN JEWELRY DEMAND. $$$

The Syndicate in control of banks, news networks, publications, and the USGovt, complete with regulatory bodies, prefer to mention repeatedly and obnoxiously that jewelry demand has faded. They prefer to trumpet the wrong notion that falling jewelry demand will push down the precious metals prices, as the bubble pops. Nothing could be further from the truth. Over the last several cycles, a crystal clear indicator serving as reliable confirmation of a bull market has been the falloff in jewelry demand. The investment demand rose by 40% in 2010, a 20-fold jump. Investment demand has taken over, easily overwhelming the jewelry decline. In fact, the investment demand is an order of magnitude larger in volume. Think in terms of necklace jewelry versus 1000-oz bullion bars, valued much higher.

◄$$$ GOLD PRICES ARE BUOYED BY CHINESE RETAIL DEMAND. PREMIUM OVER SPOT IN CHINA HAS MOVED $3 ABOVE SPOT, DURING A TIME WHEN GOLD SALES HAVE JUMPED OVER 30% FROM CHRISTMAS TO MID-JANUARY. $$$

A significant rise in gold purchases by Asian investors has created a scarcity of investment grade gold bars in the region. Price support in the gold market has come from China, as Western investors trim their holdings. The Westerners have a difficult time letting go of the paper fiat system, after the constant barrage in the press about the poor judgment and lousy prospects to purchase gold in any quantity, the dead money argument loaded with blatant stupidity and abject propaganda. Traders report that gold sales to China had jumped 30% to 50% since Christmas, through less than half the month of January. The result has been to drive up the premium for 1 kg bars in Hong Kong more than $3 per ounce above the market price of gold. That is the highest level since 2008 and a reliable indication of the tightness in the physical market. See the Financial Times article (CLICK HERE).

◄$$$ GOLD & SILVER ARE TAKING A SURPRISING BREATHER THROUGH CHRISTMAS AND AFTERWARDS. THE CRISIS IN EUROPE HAS CAUSED CONFUSION. SUPPOSEDLY SUCCESSFUL AUCTIONS HAVE RELIEVED PRESSURE ON THE EURO CURRENCY. THE CHINESE BUYERS HAVE LET THE PRICES COME TO THEM, MEETING A RAFT OF PHYSICAL BUY ORDERS. THEY ARE IN FULL CONTROL. $$$

Simply stated, the price of Gold & Silver will rise when the Chinese are ready and willing to increase their bids and volume of accumulation. My expectation is for the consolidation to resolve with an upward breakout move, due to the uncontrollable deficits and ruin of money, along with the Chinese motive to build Gold & Silver reserves. The COMEX exchange is virtually empty, deliveries expedited by urgent means and rushed shipments. The bankers are scrambling in desperation. The global shortage is becoming acute. The disconnect between the physical bullion market and paper futures market is growing worse. Opposing patterns of behavior with rising and falling Open Interest in the COMEX indicates an explosive conclusion comes, unsure when. The Big Four US banks are not being given any opportunity to exit their outsized uneconomical illicit short positions. The consolidation in both Gold & Silver is creating a very firm foundation for the next huge steps upward in price. To be honest, the price charts tell only 10% to 20% of the story. A war is raging as the global monetary system is dying and horrible death. Nations will be lucky to avoid a world war.

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

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