GLOBAL MONEY WAR REPORT
DEBASED CURRENCY COMPETITION
SOVEREIGN BOND BREAKDOWN
CENTRAL BANK DISCREDIT

* Monetary Fragments
* More MFGlobal Fallout
* Imminent European Bond Shocks
* European Banks on the Edge
* Central Banks Without Tools


HAT TRICK LETTER
Issue #94
Jim Willie CB, 
“the Golden Jackass”
18 January 2012

"The year 2011 proved a major setback for the view that policymakers had global debt crisis dynamics under control. Indeed, the European sovereign debt crisis provided an historical inflection point with respect to the capacity for fiscal and monetary policy intervention to hold the downside of a Credit bust at bay. I expect circumstances in 2012 to confirm this dynamic of waning policy efficacy, but on a more global basis. Last year, markets witnessed how policy moves in Europe too often came with unintended consequences." ~ Doug Noland (Prudent Bear, who expects conditions to go worse out of control)

"The first tremor of the earthquake that is coming to the global financial system. And how the central banks and financial regulators treated the systemically important financial institutions (SIMFIN) that had exposure to MFGlobal, to the detriment of the ordinary blameless customer who got royally ripped off in its bankruptcy, is both the template of how the next financial crisis will be handled, and an accelerator that will make the next crisis happen that much sooner." ~ Gonzalo Lira (the SIMFINs define the syndicate financial core)

"The MFGlobal scandal has made it clear that the integrity of the system has disappeared. The banks are insolvent, the governments are insolvent. All that is left is for the people to realize what is going on, and that will start a panic." ~ Tuur Demeester (editor of Macrotrends, a Dutch language publication)

"I am demanding heavy sacrifices from Italians. I can only do this if concrete advantages become visible. [Otherwise] a protest against Europe will develop in Italy, including against Germany, which is seen as the ringleader of EU intolerance, and against the European Central Bank. [The EU could help Italy with] a lowering of the interest rate. [Without a policy change] Italy, which has always been a very Europe-friendly country, could throw itself into the arms of populists." ~ Mario Monti (unelected Italian Prime Minister, from German newspaper Die Welt, which makes populist sound like something the people dislike)

"The answer, even though they see over and over again that austerity leads to collapse of the economy, the answer over and over [from politicians] is more austerity. It reminds me of medieval medicine. It is like blood-letting, where you took blood out of a patient because the theory was that there were bad humours. And very often, when you took the blood out, the patient got sicker. The response then was more blood-letting until the patient very nearly died. What is happening in Europe is a mutual suicide pact." ~ Joseph Stiglitz (Nobel Prize winner in Economics in 2001, who misses that destruction might be the plan)

"Europeans do not see what is coming. Watch for February 21st and then again for March 20th as turning point dates. The United States of America could very well cease to exist in the way you have known it after that date. February 21st is to be a date where this planet will get a fresh new program downloaded. This will mark the beginning of a monumental cleansing process that will not be over until it done. This will embrace and engulf all and everything and everyone." ~ a sage voice (titillating tease comment, referring to a bank holiday or martial law declared openly, which will probably begin with a Greek Govt Bond default and vast ripple effects)

Editor Note: please stop requests for me to join any and all social networks. Although your intentions are good, the entire system enables tracking my movement, monitoring my face, and putting me in danger. STOP!! Hardly a day goes by without an invitation, all deleted immediately. Risks rise with each passing month and each new threat in USGovt law.

MONETARY FRAGMENTS

◄$$$ LOOK FOR SOME EXTREME EVENTS TO TAKE PLACE BETWEEN MID-FEBRUARY AND MID-MARCH. INFORMED GUESSES HAVE SOME VALUE, BUT NOT MUCH. AN EXTREME SHAKEUP TO THE CURRENT SYSTEM IS COMING, AND IT WILL BE GLOBAL AND COMPREHENSIVE IN NATURE. THE FOCAL POINT IS THE GREEK GOVT BOND DEFAULT, FULLY ANTICIPATED, TO HAPPEN EVENTUALLY. $$$

My source cannot be specific, or else risk his own position and information flow. My own conjecture is simply educated guesswork. Some important significant systems are apparently ready for implementation, against the desires and objectives of the US & its British overlords. Perhaps the USDollar will be declared no longer the exclusive global reserve currency, a shared role. Perhaps a bilateral currency setup for trade settlement will be established and announced, as OPEC announces a multi-tiered payment system. The alternative to the USDollar global hegemony must come from trade settlement initially, not the extreme fortifications and root cellars of banking. All alternative trade settlement is bilateral, with two parties involved, a  process often initiated by China, one as buyer, one as seller. When the US is not the buyer or seller, the potential exists for settlement outside the US$ denomination, which is the heightened risk. Trade settlement will dictate the banking practices and reserves management. Funds must be collected within a banking system in order to facilitate enormous payments like for a tanker shipment of oil, or a container vessel of finished products. Extreme reaction will follow if a new course by Russia & China is taken. If trade settlement systems are broadly put in place, entire banking systems would react in profound ways, enough to alter the balance of bonds and currencies.

The USGovt does not command the role of global ruler, although at times it assumes that role as the former beacon of freedom. The United States has in fact lost trust due to magnificent unprecedented $trillion frauds, gargantuan hidden $trillion loans to bankers, further $trillion monetary printing, and costly $trillion aggressive wars. The effects have been lost trust, deep resentment, and rising costs globally. Perhaps some criminal prosecution for bank fraud will come finally, led by an international commission. Perhaps the big event upcoming will be a revelation of the USMilitary, banks, and security agencies are neck deep in narcotics production, distribution, and money laundering. My call for some semblance of justice and revelations might begin with the extreme upcoming events that shake the system to the core. A very serious caveat must be given. If something does not happen soon to upend the powers of the West in control of governments and financial fortresses with security agencies at their disposal, the world will plunge into a dark fascist brutal state. Time is limited, and the Eastern forces, where communism once reigned, must be expected to provide leadership into a sphere of capitalist freedom. The tables have turned 180 degrees in the last 30 to 40 years. The axis of fascism is the United States, the United Kingdom, and the little ally stronghold nation on the southern Mediterranean that looks northwest to Italy. All indications point to the Greek Govt Bond default as a trigger for vast changes to the existing system, complete with widespread effects. The immediate need might be addressed for recapitalization of the entire Western bank system. The cost could between $3 trillion and $5 trillion, maybe even $10 trillion. A great disruption comes, with elements of new forces that disturbs the present system in order to make it more stable and equitable. The impact to the Gold price could be profound and powerful.

Other possibilities for a surprise event tap the ripe fertile ground of imagination. 1) The shared USDollar usage for crude oil payments could be on the line for a major disruption. The exclusive usage of the US$ for oil payments is the centerpiece tool for the global reserve currency and all its privileges for printing wealth and enabling vast counterfeit. If the USDollar Kill Switch is pulled, a device built from a key group with financial connections to important markets and trade mechanisms, then the days of the King Dollar are in a sunset. 2) The uniform devaluation of all major currencies versus Gold could come, a move intended to lift the bank assets and treat their grand insolvency. The painful reality rub for banks is that suppressing the gold price also keeps down their asset base. Yet few big Western banks have oversized gold assets on their balance sheet. The solution seems more like a lift for Eastern banking systems loaded with hidden gold bullion in their reserves inventory, something they might actually demand for continued Western credit supply. 3) A broad global rival system for trade settlement could be announced. The movement away from the USDollar has been obvious in the last two to four years, led by China in bilateral deals. The movement might be formalized in a broader accord. 4) The movement toward a barter system of trade, bypassing the USDollar, could be launched. Many preparations have been in progress since the Lehman Brothers collapse and the Fannie Mae & AIG capture by the USGovt. The global monetary system is based upon a foundation of debt securities, faulty to the core. A barter system with a Gold core would be much more fair. Such a system has been developed, awaiting the proper time for launch, when the current system enters a stage of disintegration. It is in the long process of collapsing. 5) The Western powers could force broad forgiveness of debt tied to the United States, United Kingdom, European Union, and Japan. The losers would be China and the Arabs, who hold huge tracts of bonds. Concessions would be made in compensation. The debts would largely be wiped clean, but at the cost of forfeited US/Anglo power. My bets are on #1 and #3, crude oil payment changes and the rudiments of a high level barter system.

◄$$$ PRINCETON STUDENTS HALTED A JPMORGAN RECRUITMENT ON CAMPUS. THEY CHANTED A SONG THAT SPOKE LOUDLY. $$$

You gotta love Princeton students, who have resisted the sale of talent for syndicate membership and employ. They interrupted a JPMorgan recruitment session on their campus, stopping it cold. They chanted the Princeton motto, which JPM violated in corrupt practices. They hit on several key chords like executive bonuses, predatory lending, homeowner evictions, and crooked Wall Street deals along with privilege. This event is a milestone event, since universities are where Wall Street finds the next round of talent. See the Business Insider article (CLICK HERE) for the entire fight song that disrupted the event.

◄$$$ PLANNED CONTROLLED DECAY AND DETERIORATION TO LIMIT THE PRICE INFLATION HAS A HUGE RISK OF WIDESPREAD BANK FAILURES AND SOVEREIGN DEBT COLLAPSE. THE SAD PROCESS CONTINUES WHERE FINANCIAL FIRMS MUST SELL THEIR BEST ASSETS IN ORDER TO JUST SURVIVE. BASEL II HAS BEEN A BANK DESTRUCTION PROJECT. THE OTHER BASELINE RISK IS THAT THE HYPER-INFLATION KILLS AND RETIRES CAPITAL, AS BUSINESSES CLOSE DOWN UNPROFITABLE OPERATIONS. $$$

The European banks are being pressured into selling Italian Govt Bonds and Spanish Govt Bonds. The squeeze is on. The Euro Central Bank has gone back on Draghi's original plan. He did not wish to become the buyer of toxic bonds as last resort. Draghi caved in from desperation, since the Italian and Spanish bond markets sounded the alarms. Basel II has been such a great wrecking ball that its motive must be suspected. It seems collapse is desired, in order to place more technocrats in power without election. The breakdown of the European banks forces government budget funding processes into chaos, and vice versa. Notice the broad exemptions granted to the US and London banks on budget austerity and accounting practices. They practice a queer fiction on setting asset values. In the process, the Euro currency is badly undercut, part of the original plan probably. The central banks and their chief economists seem ignorant and blind to a very important phenomenon. They rely heavily on more debt issuance like the special bonds, more monetary expansion, and bigger liquidity facilities.

The missing piece is that the hyper-inflation kills and retires capital. The treatment has been utter monetary creation in tremendous volume. As costs rise, many businesses must shut down. They are no longer profitable. It is so simple. This risk is never acknowledged by our cast of clowns calling themselves economists. They did not learn that in university. They regard liquidity provision (a nice euphemism for utter hyper-inflation) as good, but fail to recognize the risk of capital destruction from rising costs. Putting to work new capital creates more supply, which reduces costs and enables capital equipment to go to work, employing people, creating income. The current system is fascist, socialist, destructive, and impoverishing. The heaviest cost is liberty from failure.

◄$$$ CHINA FACTORY ACTIVITY SHRINKS AGAIN IN DECEMBER. FOREIGN EXTERNAL DEMAND IS ON THE DECLINE, WITH ORDERS REDUCED. THE HOUSING BEAR MARKET ALSO BITES. CHINA IS CHALLENGED TO AVOID A HARD LANDING, WHICH IT WILL AVOID. THEIR G.D.P. GROWTH CAME IN JUST BELOW 9% LAST QUARTER, EASILY AVERTING THE SILLY FORECAST OF A HARD LANDING. THE EUROPEAN AND USECONOMY ARE STUCK IN A MASSIVE CHRONIC RECESSION, BY COMPARISON. THE PINCH IS ESPECIALLY TOUGH ON THE SMALL MANUFACTURING ENTERPRISES, WHERE LENDING RISK IS GREATER FOR THE BANKS. $$$

December data showed a continued decline in the Chinese manufacturing sector. Higher inventory accumulation of finished goods occurred for the first time in 17 months. Although modest, the rate of inventory growth was the third fastest in the series history. Reduced new order levels contributed to a fall in work-in-hand (not yet completed) for the first time in 18 months. New business is falling faster than output. External demand slowdown has begun to be felt, as foreign importers react to recession. The entire industrial picture is aggravated by the ongoing property market corrections. Calls have come for more aggressive stimulus action. New business creation was down from the change in profit prospects. New export business fell back during December, ending a two month period of growth. Hongbin Qu is chief economist from Asian economic research at HSBC. He said, "While the pace of slowdown is stabilizing somewhat, weakening external demand is starting to bite. This, plus the ongoing property market corrections, adds to calls for more aggressive action on both fiscal and monetary fronts to stabilize growth and jobs, especially with prices easing rapidly. Hard landings should be avoided so long as easing measures filter through in the coming months." See the Markit Economics article (CLICK HERE).

Take for a microcosm example the small and medium sized enterprises involved in manufacturing in the Pearl River Delta. They are an important pillar. The sharp decline in orders since 2008 has evolved into a more severe problem. Tens of thousands of small enterprises engaged in low value added manufacturing are under pressure as foreign orders decrease, costs rise, labor becomes scarce, profit margins decline, and financing difficulties arise. Operations are difficult to sustain under such hostile conditions. A recent Guangdong official research report painted a gloomy picture. It wrote, "Even if there are orders, companies do not dare accept them, because it is difficult to make a profit. In all, 50% of surveyed companies said they were losing money or had profit margins of less than 2%. Only 22.2% of companies stated they had profit margins of 5% or more." The commercial banks cite two obstacles in providing credit to small manufacturing enterprises. First, they tend to have few assets for providing collateral, which adds to lending risks. Second, lending to large companies is more profitable. As a natural response, loans are flowing to large companies. See the Caixin article (CLICK HERE). Keep in mind the mindless nitwit Western economist rhetoric for China to permit its Yuan currency to rise in value. They seem totally unaware that a large swath of Chinese factory life would vanish, as much of this industry operates near the edge of unprofitability. A much higher Yuan valuation would mean Western supply lines are interrupted, shortages to result. Their leaders are working hard to avoid widespread unemployment, which would destabilize the one-party government of unique capitalist communist variety.

The Chinese Economy expanded at the slowest pace in 10 quarters as export demand moderated and a prolonged campaign directed against the torrid pace of consumer and property price gains cooled growth. Gross Domestic Product rose 8.9% in the 4Q2011 versus a year ago. This is the first time GDP growth fell below 9% since mid-2009. As price inflation concerns lessen, the important perspective is on the more dim outlook on export trade. A case in point is equipment maker Sany Heavy Industry. Its chairman Liang Wengen, the richest man in China, told Premier Wen this month that construction machinery demand is weak. He urged an increase in infrastructure investment. Jing Ulrich is chairman of global markets for China at JPMorgan Chase in Hong Kong. She said, "Decelerating GDP growth will provide more room for policy makers to shift towards a pro-growth bias after an extended tightening cycle. At this juncture, the challenge for policy makers is to implement measures that boost domestic demand without setting back progress made in curbing inflation." The consumer prices in China rose by 5.4% in year 2011. Their export trade is vulnerable to the European and US recessions. The world's largest export industry nation could see shipment growth cut in half this year from a red hot 20% pace in 2011. Calls for a hard landing in China over the last two years have been baseless and incorrect. They will continue to be incorrect, although still heard in various corners. See the Bloomberg article (CLICK HERE).

◄$$$ GULLIBILITY POINTS FROM THE GOLD COMMUNITY ARE VERY UPSETTING TO ALERT INVESTORS. THE SOUND MONEY CROWD IS SUBJECT TO DIM THOUGHTS AND REGULAR SHORTCOMINGS. $$$

In the last two years or more, some disappointment has come in watching analysts in the gold community who must contend with blind spots, ignorance, and gullibility. They are among our crowd of sound money advocates and hard asset investors. Many bought the crazy notion that the Commodity Futures Trading Commission would impose trading limits on the Big Four US banks. The Jackass never bit that lure. The CFTC is a tool of the Syndicate, always has been, always will be. They pacify the public with distractions. What nonsense! Many bought the crazy notion that forced disclosure of the USFed will bring the central bank under control. The Jackass never bit that lure. At best the public would be told what happened several months ago, long after the criminal grants were complete, after anything could be done about them. What nonsense! Many bought the crazy notion that hyper monetary inflation results in wide economic price inflation. The Jackass might have bit that lure gently. The vast efforts to contain the monetary expansion within the financial sector firewalls has been made vividly clear. What nonsense! My thought was that some would leak over the wall into the street. Many bought the crazy notion that the Asian metal exchanges would crush the US/Anglo corrupt corners and overrun their short positions. There was a Rothschild hidden in that Asian bush. To be honest, the Jackass accepted that notion too, incorrectly, admittedly, but backed off quickly. What nonsense!

Many bought the crazy notion that the European collapse would lift Gold. To the extent that the monetary system would suffer, the Jackass bought into that notion, since Gold would be a pursued island in the storm. The arrival of Dollar Swap Facilities and negative gold lease rates, combined with the 144 tonnes of Qaddafi gold bullion sure slammed that notion down. What nonsense! The Jackass was disappointed for a wrong viewpoint on Gold, in under-estimating the forces of darkness. Many bought the crazy notion that expecting QE3 to happen in the future. The Jackass never bit that lure. The quantitative easing never ended, only changed names, and the deception intensified. Like how the Operation Twist was a disguised QE to neutralize all the USTBonds that foreign creditors sold. My analysis detailed how the central bankers would create a Global QE, and keep their bond monetization efforts quiet. What nonsense! Many bought the crazy notion that interest rates must rise as the USGovt deficits piled up new mountains of paper to sell. Since late 2009, the Jackass never bit that lure. Before mid-2009, my naive ways to Interest Rate Swaps and other devices to control rates had not yet been subjected to an education. Thanks goes to Rob Kirby for elucidation. What nonsense! Sadly, too much gullibility exists in the gold community. Despite being grounded in the correct faith in gold, the human condition calls for many shortcomings of intellect, and blind spots from emotion. The biggest dolts include Adam Hamilton and Antal Fekete.

◄$$$ MINING FIRM REVENUES SHOULD RISE WITH HIGHER GOLD PRICES, EVEN THOUGH COSTS RISE WITH ENERGY AND MATERIALS. BUT THAT ARGUMENT MADE BY CHAPMAN MISSES THE REST OF THE PROBLEMS. THAT HIGH COSTS, STOCK DILUTION, LONG WAITS FOR PRODUCTION, MARKET CORRUPTION, AND JURISDICTION RISK ALL THREATEN THE MINING STOCKS IS A MISSED POINT AND CAUSE FOR DEAD INVESTMENT MONEY. $$$

Several meaningful perceptions by Bob Chapman warrant comment on a topic of interest, mining stock investment prospects. We are in disagreement on the viability and outlook toward mining stocks present and future valuations. His position on a few important aspects are so far off the mark as to warrant a rebuttal. Take this as an update on the troubled mining stock niche sector, for which my gloomy forecast back in 2008 has come true. My desire is never to misrepresent any analyst, not anywhere. We disagree on this topic, for which we each have strong opinions. My view has been and remains that mining stocks are stifled and bound in dead money, whose investors often feel somewhat trapped since heavily invested and on negative ground. My focus is broader. Chapman acknowledges that precious metals are heavily manipulated and remain far cheaper than they should be. He expects an eventual fast rise up, given how attractively low priced they are. That argument misses the mark and avoids explanations on why they have suffered on valuations for the past three years. He expects because of recognized danger in the Exchange Traded Funds (like GLD & SLV), the mining shares will benefit handsomely. He describes the Price/Earnings ratio for producers right now to be 15 times. He scoffs at the mere 1:1 leverage in physical gold & silver investments, and thereby suggests a limit of 33% in bullion asset allocation (bars or coins). He continues to advocate strong portfolio positions in the mining stocks.

The Jackass belief is that he will be wrong about North American mining firms enjoying a grand resurrection. They will be gobbled up easily by the Boyz in buyouts for pennies, unless they choke on their own rules and arrogance and corruption. Here are some Chapman points marked by "BC" with supporting arguments, and my rebuttals marked by "ME" afterwards. Dave in Denver reports that last week Blackrock made a formal 13G filing with the SEC, reporting a 10.4% ownership position in Agnico Eagle (AEM) stock. A larger wave of big institutional money flowing into the extraordinarily cheap mining stock sector could happen. Big institutions tend to run in herds. The Jackass would love to see it, and be proved wrong. See the Truth in Gold article (CLICK HERE).

BC: Energy costs don't mean much. They are reflected in inflation which in turn is reflected in the price of Gold & Silver. So mining firms realize bigger income as both costs and gold rise in value. He went on to criticize most newsletter writers who could not figure this out, because they have no background in economics. ME: The argument falls flat on its face for the diverse long list of mining firms that have yet to enter production output. Their costs rise without any matching income, as in zero income. Read ZERO. Many firms as they approach income streams must put up huge capital for expensive but critical mills, more dilution. While in normal times, gold & crude oil are linked directly, that is no longer the case. The funds in gold fled for crude oil, which was not under attack. In 2010, gold rose much more strongly than crude oil. In late 2011, gold fell much more than crude oil. So the major commodities have NOT run together in the last two years. The funds like Paulson were attacked by various tools, as crude oil rose from the Iran ploy. If lumber, cement, diesel, and natural gas go way up in cost, the shock would have a detrimental effect on mine project output, but more so on future producers who fall by the wayside from rising costs, frustrated investors, and depleted stock equity. The financial markets nowadays are torn apart by insolvent systems and threats to paper securities of all types, not just sovereign bonds and mortgage bonds. Trust in paper securities is in the toilet. Chapman seems not to have noticed, nor the difficult transition from explorer to producer. The stock market is levitated by the USGovt and its Working Group for Financial Markets. The undesirable elements of the stock market are targeted by Wall Street with USGovt blessing. The hedge funds are either attacked and driven from the field, or enlisted to conduct naked shorting and spread themes that drive down mining stocks.

BC: Nationalization will not happen in North America. He claims no US or Canadian mines have ever been confiscated, but gold bars have been. He argues that other nations that nationalize are themselves cut out totally from any kind of financing. ME: That totally misses the point, since the issue is foreign properties, not headquarter location. When the Newmont mine deposits in Uzbekistan were confiscated in 2007, the consequence was nil to that wayward misguided thieving government. No matter if their government is isolated in future finance deals. The deposit was stolen, the key point being lost reserves, lost output, and lost income source. The stock was hit. When PanAm Silver had its vast silver deposits stolen by the Russian Govt, another major hit was recorded for the stock, a Bill Gates favorite. Russia will not be locked out of finance deals, a silly notion. As the Gold bull resumes apace, foreign jurisdictions will continue to target the extreme concentrated wealth. Chapman is way off the mark here, since rogue nations remain rogue in a constant path, as Venezuela is testament. They recently expanded their confiscation and nationalization in a very broad sense. In no way are finance deals an issue with Chavez and his crew of incompetent thieves hiding behind the socialist banner. Several Western mining firms remained inside Venezuela even after the hostility was exhibited by the Chavez regime years ago. One should beware that even in North America, where government deficits have already spiraled out of control, mining firm profits will someday be targeted. The precedent is from the 1970 decade. The laws are being drafted.

BC: MFGlobal had nothing to do with Gold & Silver. He went on to claim that what they did was legal because the losers had margin accounts. He emphatically states that from the very beginning, he has expected everybody will get their money back. He believes there have been so many lies about MFG, that they cannot be counted. In fact, he called the Jackass ignorant since my written and stated expectation is for over a million private accounts to go missing in future months (pension funds, mutual funds, money market funds, stock accounts, bank CDs). ME: A big wow! is required. Private segregated accounts are sacred, and are to be protected, according to regulatory bodies and the ethical thread of the US financial system and its society, not to be confused with barbarians. The victims will not see their funds reinstated, not by a long shot. At best some of the lucky will see 35% or more. He does not seem to be aware of the victimized farmers, both with frozen accounts, funds still missing, many bankrupted. One colleague is in touch with me regularly. He expects very little to come his way, as the trustee took away all account receipts, rendering the victims without evidence of the theft. Chapman is delusional on this matter. Also, MFG victims include legions of futures contract holders with demands for delivery in hand, as in Notices. Instead of receiving delivery of gold bars and silver bars, their accounts vanished. The over 600 thousand ounces of silver lined up for delivery into private accounts instead showed up in JPMorgan registered accounts. Chapman seems not to have noticed. The MFGlobal event had two sides, one the European sovereign debt losses, the second the rush to avert a massive delivery of precious metals to investors. This seems utterly basic.

BC: In 250 years no one has ever lost their stocks or bonds, since this is where the Illuminists make all their money. He explains they will not put aside the theft of stocks and bonds and deprive themselves of the system based upon looting. ME: He must not be aware of the fact that over half of small mining stocks have lost tremendous value. They have been driven down by naked shorting done by their own finance team partners, Canaccord the worst offender, Alpha One their agent for theft. They have been driven down by extreme dilution so as to raise cash for continued operations, and to build mills. If Chappy refers to stocks beyond the mining walls, then he should check out Enron, WorldCom, Nortel, Fannie Mae, even Bank of America and Citigroup. In fairness, maybe Chappy only means nobody has ever lost a stock from failing to demand a certificate, an even shallower point.

Chapman makes really small man sweeping accusations. Calling the Jackass ignorant obviously sticks in my craw, but Chappy is a great guy and a strong loyal soldier. He has some great successful mining stocks in his portfolio, recommended to his followers. Some of his sources are great, but the sector is rotten. Some reliable sources in my camp have explained the extreme situation with segregated account losses, the impact spreading widely. The sources discuss a trend, with Swiss accounts ravaged for their allocated gold, with MFGlobal accounts stolen instead of seeing gold in delivery. One source of mine directly warned of widespread vanishing acts for US financial accounts, a warning the Jackass heeds responsibly, given his great track record (one month pre-warning on Lehman Brothers and Fannie Mae). Chappy openly stated that many misstatements have come from people who want to sell coins or newsletters or DVDs, who are untrained unprofessional louts. The Jackass might qualify. My educational training was not lacking. Chappy lays into Jim Sinclair for urging investors to take stock certificates in investor names. He claims the great majority of brokers cannot satisfy such requests, and charge $250 per certificate. My queries are not consistent on providing certificates, but one must be persistent with the brokerage firm. Many still provide them. My ears have heard $25 to $30 on the cost. It is unclear whether a notarization process is required to sell the stocks. Chappy quotes a Barrons article that reports how Sinclair sold out all the mining stock from his company. If a JPMorgan research report issued the same report, it should not be believed either.

As a final blow, hardly just a footnote, is a description of a new law to be enacted in 2013. It is the Windfall Profits Tax, given a more palatable name to prevent objections. After the Arab Oil Embargo in 1973, and a four-fold rise in the crude oil price in a complex Saudi-US deal of many hidden parts, oil firm profits were taxed heavily, to create a source of great USGovt income. Officially called Gold Miner Profit Tax Act, the new nasty legislation formed a compromise between the Obama Admin and the USCongress over the decontrol of gold prices. The Act is intended to recoup the revenue earned by miners as a result of the sharp increase in precious metal prices that has coincided with major financial market damage. According to the Congressional Research Service, the Act's proposed title is a misnomer. Despite its name, it will be an excise tax calculated in truly queer fashion. The USGovt elves will impose a tax on the difference between the market prices of gold and silver (removal price) and a statutory 2012 base price that will be adjusted quarterly for inflation and state severance taxes. The reaction to mining stocks will not be good, but fully anticipated for some time by the Jackass. The securities arena generally is in ruins in almost all sectors. Chapman should take notice.

MORE MFGLOBAL FALLOUT

◄$$$ LIRA SHARES THOUGHTS ON PERSONAL RISK DURING THE UPCOMING RUN ON THE FINANCIAL SYSTEM. HE SEES RISK IN HOLDING ANY PAPER SECURITY. HE EXPECTS A RUN ON THE ENTIRE PAPER-BASED FINANCIAL SYSTEM. HE IDENTIFIES THE KEY CRIMINAL ACT IN THE RESOLUTION, NOT THE THEFT ITSELF. IT IS TREATMENT OF THE MF-GLOBAL BUST AS AN EQUITIES FIRM, NOT A BROKERAGE FIRM. WITHOUT ANY DOUBT, MF-GLOBAL IS A BROKERAGE FIRM. $$$

Gonzalo Lira is outspoken and a little wild, but very astute. He summarized the risks in the wake of the November MFGlobal & JPMorgan crime scene. He hones in on a very crucial point on the prosecution of the grand crime, a veritable financial weapon of mass destruction. He wrote, "MFGlobal pledged customer assets to JPMorgan, in a process known as re-hypothecation, customer assets which MFGlobal did not have a right to [touch]. Needless to say, JPMorgan covered its ass legally. Ethically? Morally? Black as night. This was seriously wrong. This is the source of the scandal: Rather than being treated as a bankruptcy of a commodities brokerage firm under subchapter IV of the Chapter 7 bankruptcy law, MFGlobal was treated as an equities firm (subchapter III) for the purposes of its bankruptcy. In a brokerage firm bankruptcy, the customers get their money first, because after all, it is theirs, while in an equities firm bankruptcy, the customers are at the end of the line. In the case of MFGlobal, what should have happened was for all the customers to get their money first. Then everyone else, including JPMorgan, would have picked over the remaining scraps. The MFGlobal scandal means that there is no safety for any paper investment. The integrity of the systems has been completely shattered. If in the face of one medium sized brokerage firm going under, the regulators will openly allow ordinary people to be ripped off for the sake of protecting the so-called Systemically Important Financial Institutions, in this case JPMorgan. A subsequent run on the entire financial system is only a matter of time. In fact, the handling of the MFGlobal affair has sped up the timeframe for this run on the system, because the forward edge players realize that the regulators will side with the banksters, and not the ordinary investors. So we are preparing accordingly. Once there is a full-on panic, anyone with money in the system will lose at least a big chunk of it." See the Gonzalo Lira article (CLICK HERE). Great points!!

◄$$$ A FRESH LONG OVERDUE R.I.C.O. LAWSUIT TARGETS MF-GLOBAL, THE CME-GROUP, AND JPMORGAN CHASE FOR GRAND LARCENY AND RACKETEERING. THE CONSEQUENCES WOULD BE VAST, AS IN ASSET CONFISCATION. $$$

The Philadelphia law firm of Berger & Montague in early January brought a class action lawsuit in federal court in New York, charging theft and misappropriation, against people connected with the failed commodity brokerage firm MFGlobal, including its former CEO Jon Corzine (former Senator and Governor), the CME Group (main enabler of MFGlobal and supposed regulator), and the investment bank JPMorganChase. The lawsuit is brought under both the Commodity Exchange Act and the Racketeer Influenced Corrupt Organizations Act, the famous RICO law. Maybe the lawsuit can determine where JPMorgan placed Judge Crater. The lawsuit's complaint is posted at GATA's Internet site (CLICK HERE). Bear in mind that any RICO confiscations after a court judgment would send assets from the Syndicate to the Syndicate, since they control the USGovt and its asset disposal. What irony!! Sooner or later, a major RICO slam will hit Wall Street. It is just a matter of time. When it does, its likely vacated ruling will unmask the Syndicate for what it is, a crime syndicate in full view. The bigger issue is perception, since the public could remove its money from the major US banks. Any RICO ruling should stipulate that confiscated assets go to the victims, not the USGovt controlled by the Syndicate.

◄$$$ THE MF-GLOBAL AFTERMATH SLOWLY SHOWS CONFIRMATION OF THE DEEP EXTENT OF RE-HYPOTHECATION AND ITS EXTENDED RISK. THE IMPROPER USAGE OF CLIENT FUNDS AS COLLATERAL FOR BIG FINANCIAL FIRM GAMBLES IS MADE MORE CLEAR BY C.M.E. HEAD TERRY DUFFY. HE ESTIMATES AT $185 BILLION THE EXTENT OF THE COLLATERAL GRABS BY MAJOR FINANCIAL FIRMS IN THE UNITED STATES. $$$

A discerning analyst expects a few more MFGlobal scenarios right around the corner. As the system hurtles toward breakdown, decisions will be made to steal private accounts, rather than to permit the system to collapse. The next crime scenario will crush financial markets due to money rushing to the exits en masse. The CME Group has revealed the risk in its statements. CEO Terry Duffy has proclaimed in the first week of January that the exchange will not guarantee MFG client funds because that would set a $185 billion precedent. That figure is his estimate. The revelations came from the class action lawsuit, handled by the Commodity Customer Coalition. Its chief James Koutoulas is lead counsel in the lawsuit on behalf of MFG victims. Certain interviews shed clear light on the theft by MFGlobal and JPMorgan of the segregated client funds as a result of MFG re-hypothecation. They illicitly attached client assets as collateral for their doomed corporate bets on European sovereign bonds. Koutoulas states that Duffy told him personally that the CME could have made MFG clients whole on their re-hypothecated assets, but that the action would have set a $185 billion precedent. Seems like a spotlight on the ongoing practices. The CME refused to perform their duty in using their $8 billion official bailout fund to make good on segregated MFGlobal client funds. The reason why is basic. Because MFGlobal is the tip of the iceberg. Doing so would set a precedent for $185 billion in customer segregated funds that have been hypothecated & re-hypothecated at every other bank and brokerage house! Duffy cited the huge figure, in an estimation of the extent of the criminal activity in collateral grabs. See the Silver Doctors article (CLICK HERE).

Charlie Gasparino is bold, and must be careful to wage battle with the powerful Syndicate. He could suffer an induced heart attack, experience an odd car accident, or find himself diving off a bridge. He claims that a senior regulatory source has told Fox Business News that a breakup of the CME is on the table, in his words. Such breakup would be similar to that of the NASDAQ in the late 1990 decade. Blame is cast on Corzine for not upgrading the MFGlobal compliance mechanisms when he took MFG from being almost strictly a market maker to a functioning hedge fund. Gasparino concluded, "If the CME did not regulate it [MFG] like it should have, there is a very good likelihood there will be a breakup." See the Fox Business article (CLICK HERE).

◄$$$ ANN BARNHARDT CONFIRMED THE C.O.M.E.X. IS GOING INTO HYPER DEATH CON. PLAYERS ARE EXITING. RISK OF THEFT IS PERCEIVED. TRUST HAS GONE. METAL INVENTORY WILL VANISH NEXT FROM HONEST PLAYERS. THE NORMAL METHODS OF RISK HEDGING ARE GOING AWAY, TURNING TO PRIVATE MEANS, OR QUITTING ALTOGETHER. $$$

Ann Barnhardt made a huge splash last month in her decision to shut down BCM Capital brokerage firm, for fear that client funds were at great risk of theft. She outlines many carefully laid points. Here are some of her main points with fortified evidence. Notice the point about high frequency trading, which indirectly indicts the GLD & SLV (gold and silver) funds, whose inventory is likely connected to futures arbitrage schemes, as their bullion metal is drained. Notice the perceived spread of futures hedge exposure at the market peripheries. She wrote, "First, I absolutely totally completely and 105% confirm that the futures markets are withering and dying on the vine as we speak. I am hearing for every single one of my contacts, both floor guys (in both Chicago and NY) and introducing brokers (as I used to be) all over the country, that business is totally evaporating. And we are not talking the normal Christmas season slowdown. No. We are talking people explicitly stating that they are done trading and hedging with futures, both speculators and hedgers. It is over. No mas. This was going on to some extent before the MFGlobal rape/theft. The markets had grown thinner and thinner, ironically on more net volume, but the volume increases were due to the veritable fungal infection of the market that is the high frequency algorithm trading systems. Furthermore, any short hedger with a brain in their head over the last 18 months has known that short hedging in an inflationary environment is and would be needless suicide. At this point, anyone who actually believes any statistics that come out of the federal government or the Federal Reserve (there is no inflation!) has got to be mentally disabled. Literally, mentally disabled.

I taught one of my Level 2 Cornerstone Cattle Marketing schools a couple of weeks ago and we talked at length about cascading counter-party risk. Not only are producers not using the futures themselves, but they are also very keenly aware of the fact that if producers enter into a private treaty forward delivery contract with a grain elevator or a feedlot, that they would still be exposed to the futures market, and to the risk of a futures market collapse, or even just another wealth confiscation. Yes, even though the producer was not engaged in the futures markets himself, if his counter-party turned around and laid off the risk on their private treaty forward contract using the futures, if their private counter-party were to be caught up in either a single firm collapse or a total system collapse, it is highly probable that the effects of that would cascade back to them. For example, suppose a rancher forward sells his calf crop to a feedlot and locks in his price with the feedlot on a purely private basis. If the feedlot then turned around and sold futures to offset the private forward buy of the rancher's cattle and then got caught up in a futures market confiscation or collapse, the feedlot might be so financially hamstrung that they might then default on the private contract with the rancher. This same dynamic could also happen with grain farmers who forward sell grain to an elevator on a private contract. Or it could happen to a feedlot that forward buys feed grain from an elevator. It could also happen in the petroleum markets, and on and on.

There are lots of private treaty forward contracting going on, and always have been. In fact, I have almost always advocated to my clients that they look to a private treaty cash market contract with feedlots or elevators first before using futures, because that way the feedlot or the elevator is the entity carrying the hedge in the futures market, and thus posting margin and meeting margin calls. But, it was fair to say that whenever a private treaty forward contract was entered into, eventually someone laid that risk off on the futures market. Some big players are still so attached and dependent on the futures market, and simply cannot comprehend or execute a paradigm shift, which betrays a massive weakness of intellect, that they are still trying to operate as usual, with their brokers, likewise in denial. The sensible players and producers are wising up, and are now even shunning private treaty forward contracts in fear of counter-party risk, should a cascading collapse occur. This MFGlobal situation is not just about a few bucks being stolen from a brokerage firm. Both the scope and cascading consequences of Corzine's actions put this firmly in the domain of economic treason, as in an act of economic war upon the United States and her people. The cash cattle marketing skillset that I was taught and continue to teach is exactly the remedy for what is happening around us. The answer is not in ever more complex derivatives, but in the simple, millennia-old arithmetical art of physical commodity arbitrage."     

◄$$$ SANTELLI OF CNBC HAS BEEN THREATENED BY JPMORGAN. IF HE CONTINUES TO CAST BAD LIGHT ON THE SYNDICATE, THE BIG BANK WILL PULL HIS ACCOUNTS, SHARED WHEN HE COMMENTED ON MFGLOBAL. THE SYNDICATE TENDS TO HIT THE BIG MOUTHPIECES AND SPOKESMEN. $$$

Rick Santelli of CNBC and the Chicago Pits is hardly a whistleblower or a detailed reporter of Syndicate crimes. His style is usually bold and targeted. His isolated rants are both entertaining and illuminating. Lately, his criticism of the MFGlobal and JPMorgan crime scene has earned him some grief. He has been followed and being stalked by NSA goons from the USGovt. They are observing closely and quietly. A December 30th interview was telling, as Santilli discussed the whole story of the CME Group. When he finished, he immediately went into praising bonds, like a trained soldier doing a messy detail. Santelli might not have directly stated that JPMorgan stole the MFG client funds. He said that he had received threats from JPM to shut his mouth or they would shut down his accounts, something along those lines. A lawyer was present for the interview. See the CNBC video (CLICK HERE).

◄$$$ BLOOMBERG NEWS SUFFERED FROM THE MFGLOBAL COLLAPSE. THEY SELL NEWS & MARKET DATA SUBSCRIPTIONS. REVENUE HAS COME DOWN, SINCE FINANCIAL FIRMS ARE SHUTTERED. $$$

The hot item is Bloomberg terminals. When MFGlobal collapsed, Bloomberg lost nearly $1 million a month in revenue from their business. The financial information giant Bloomberg LP lost about 600 subscriptions to its computer terminal business after MF Global filed for bankruptcy on October 31st. The Bloomberg conglomerate generates nearly $7 billion in revenue per year. So a speedbump was the result. However, the hit underscores the symbiotic relationship between Wall Street and Bloomberg. That is why even though not as obsequious and fawning, with bootlicking to the degree of CNBC, the Bloomberg hosts still show far too much respect to the corrupt gamers on Wall Street and their legion of fund managers in tow.

My impression has been that Bloomberg points out the dark side much more than CNBC, but still only a little, and never enough. The terminals in question sport an orange type on black screens that spew real-time market quotes, news, and data ranging from FOREX to bonds to hedge fund holdings to credit default swaps. They are ubiquitous on Wall Street. Bloomberg has more than 314,000 terminal subscriptions worldwide. The income from those subscriptions accounts for about 85% of company revenue. Each terminal subscription costs about $20,000 per year. Bloomberg competes with Reuters, FactSet Research System, and Dow Jones (of News Corp). Given its reliance on subscriptions, Bloomberg is susceptible to turbulence on Wall Street, to financial firm failures, and to fraud events. The collapse of Lehman Brothers cost them 3500 terminal subscriptions. Sometimes the failed firms result in certain more competent employees starting hedge funds, which require their own terminals. See the New York Times article (CLICK HERE).

IMMINENT EUROPEAN BOND SHOCKS

◄$$$ UPDATE FROM EUROPE AND THE GRAND REALM. BOTH THE EURO CENTRAL BANK (1.0%) AND THE BANK OF ENGLAND (0.5%) STAYED PUT ON OFFICIAL INTEREST RATES. THEY ARE CRIPPLED AND FROZEN WITH GROSSLY INSOLVENT BANKING SYSTEMS UNDER THEIR WATCH. BOND AUCTIONS PROCEED AS THOUGH ALL IS WELL, BUT THE STORM BREWS UGLY. $$$

Not comprehending the intractible situation, the Euro currency rose after Euro Central Bank President Mario Draghi held firm at 1.0% on the official interest rate. The USDollar softened slightly, as the Bank of England also held firm at 0.5% on rates. The London castle avoided announcing new stimulus, as it maintained its GBP 275 billion (=US$420 bn) target for bond purchases. The UKEconomy also showed signs of life. Some whiff of economic stability gave the central banks the foothold justification to pause on rate decisions. The vast EuroCB infusions (against Draghi's will) has won some benefits and respite, but only temporarily. A rebound in German exports, up 2.5% in November, hint the slowdown may be losing grip. The 10% decline in the Euro currency versus the USDollar since late October has helped to reduce the systemic costs in the region. Liquidity provision seems much more important than interest rate concerns. Liquidity has been a torrent, a veritable flood to stem the crisis. But the monetary inflation will work to lift the price structure in insidious ways, and the same inflation will rot the capital base in ways that confound inept economists. The quagmire is assured by continued emphasis on budget austerity that has been exported from the Southern nations northward. The poison pills do not work. Actually nothing works except vast bank liquidation and bond liquidation, which will not occur. See the Bloomberg article (CLICK HERE).

◄$$$ AUCTION RESULTS HAVE BEEN FAVORABLE IN THE LAST TWO WEEKS, AND BELIE THE CRISIS. SPAIN SOLD TWICE ITS MAXIMUM GOAL AT A NOTE AUCTION. NO SHORTAGE OF DEMAND SUDDENLY AS THE EURO-CB HAS STEPPED TO THE PLATE WITH BOTH HANDS. THE DECEMBER TOTAL OF CENTRAL BANK EXTENDED BANK LOANS WAS ALMOST HALF A TRILLION EUROS IN DECEMBER. SUCH LARGESSE CAN PAINT OVER PROBLEMS ON A TEMPORARY BASIS, YET FUNDAMENTALS ARE WRETCHED. $$$

As preface, take note that the Swiss National Bank President Philipp Hildebrand resigned as part of the insider trading his wife executed. Think pillow talk, as she profited handsomely. Traders see the Swiss Franc currency as vulnerable to a sizeable jump upward. Its stability could be challenged. The financial rain in Spain appears on the wane, but the pain will remain. The Spanish Govt auctioned EUR 9.98 billion (=US$12.8 bn) of Notes last week, far more than the maximum target of EUR 5 billion planned. Included were EUR 4.27 billion in new benchmark three-year debt issued. Also, the Italian Govt auctioned EUR 12 billion of Bills at 2.735%, way down from 5.952% at the last panicky auction. While the fundamentals are stuck negative, the three-month cross-currency basis swap, the rate banks pay to convert Euro interest payments into US$ terms, was 0.8% points below the Euro Interbank Offered Rate last week. That is the least expensive since August 31st. It was negative 90 basis point points recently, after increasing to minus 158 bpts on November 29th, the most expensive since 2008.

Without doubt the Euro Central Bank is choking on sovereign bonds, and remains the primary buyer, the buyer of last resort since big European banks continue to sell sell sell, especially with the buyers entering avidly to avert any deeper throes in the unresolvable crisis. EuroCB head Draghi reported that the record EUR 489 billion (=US$628 bn) in three-year ECB loans to banks made last month have begun to unlock markets and have prevented the credit contraction from becoming more serious. He pointed to tentative signs of EuroZone stability on the economic front. That is a lot of printed money. Europe matches the United States in monetary hyper inflation. See the Bloomberg article (CLICK HERE).

◄$$$ MORE SOVEREIGN DEBT DOWNGRADES HAVE HIT EUROPE, BUT GERMANY RETAINED THEIR STERLING AAA RATING. THE KEY WAS A CUT IN FRENCH AND AUSTRIAN GOVT DEBT. AT RISK IS THE STABILITY FUND RATING ITSELF (FINALLY DOWNGRADED), WHICH ISSUES SPECIAL BONDS. PRESIDENT SARKOZY OF FRANCE FACES STIFF OPPOSITION TO LOSE HIS POST. THE DEEPENING CLAW OF RECESSION WORKS AGAINST HIS BID FOR RE-ELECTION. AUSTERITY IN BUDGETED SPENDING WILL WORK DIRECTLY AGAINST HIM, A BLIND SPOT. $$$

Standard & Poors has delivered another bombshell. The  prized AAA rating for Germany was retained, but France and Austria were hit with downgrades on their sovereign debt. France will lose its AAA rating for the first time, confirmed by Agence France Presse reported. Top-rated Austria will also be downgraded. For Germany to remain AAA is regarded as a salvaged situation for the time being, mollifying the blow of a French downgrade. Besieged governments struggle to convince investors that they can restore fiscal solvency and cut deficits, a situation that has roiled the continent for two years. The lost sterling ranking for France and Austria threatens the official regional bailout fund though, which continues to aid Greece, Ireland, and Portugal. The European Financial Stability Facility contains EUR 440 billion (=US$558 bn) in potency. It owes its AAA rating to guarantees from the top-rated nations of the region.

David Schnautz is a fixed income strategist at Commerzbank in London. He said, "It will be interesting to see what the strategy will be regarding the EFSF. If France and Austria's ratings were both lowered, it would limit the volume of AAA rated EFSF paper that could be issued, or the EFSF could begin to issue non triple-A rated paper." Nick Kounis from the macro research desk at ABN Amro Bank in the Netherlands added, "The crisis remains unresolved and policy action has still not been sufficient to contain it. We have had a few calmer weeks with sentiment improving, but the situation was vulnerable to re-escalation. The rating downgrades are a potential trigger for a re-escalation, given not enough has been done on the policy front to contain the crisis on a sustainable basis." Reality is worse than surmised events. The Euro currency was dealt a blow late last Monday, as it plumbed recent low levels.

News came that Standard & Poors cut the credit rating of the European Financial Stability Facility, the EuroZone bank rescue fund, by one notch from triple A to AA+, in the ultimate insult. In defensive reaction, Klaus Regling, the CEO of the facility said the downgrade will not hamper its of EUR 440 billion capacity. He said "EFSF has sufficient means to fulfill its commitments under current and potential future adjustment programs until the (permanent) European Stability Mechanism becomes operational in July 2012." Luxembourg Prime Minister Jean-Claude Juncker, the leading EuroZone finance minister, said "[The EFSFacility] has sufficient means to fulfill its commitments under current and potential future adjustment programs and will continue to be backed by unconditional and irrevocable guarantees by Euro area member states." They are clearly sensitive to the critical blow, their denials mere confirmation. The S&P downgrade is insult to injury, kind of like downgrading the USFed Liquidity Facility flavor of the month. Global politics appears obvious, as whacks to Europe are naively seen to lift the USDollar prospects. The reality is more like downgrades tarnish all fiat paper currencies and their tattered bonds. See the Financial Times article (CLICK HERE) and the Bloomberg article (CLICK HERE).

Meanwhile, the French Economy is sliding into a recession. President Nicolas Sarkozy has opposition, and the economy is a big issue, along with the bond picture. He has strived to protect their creditworthiness by announcing tax increases and spending cuts, both to assure even greater fiscal deficits and worse problems for French Govt Bonds. What an intractible position! He might not be seen as a credible candidate soon. He might become the whipping boy. Sarkozy trails his main rival, Socialist Party candidate Francois Hollande, by about 14 points, according to a January 9th poll for BVA, Le Parisien newspaper. He stresses the placement of sound economic policy and the strategy of reducing spending. As seen in other nations, austerity in spending only worsens the economic recession, cuts jobs, terminates projects, adds to deficits, and harms the bond valuation. They are poison pills without recognition, in the most blatant blind spot of pervasive ignorance.

What started the high level downgrade was the individual nation downgrades, a slew of them. Once more, Standard & Poors cut Italy and Spain, in another of a series of debt downgrades. The decision could work against gains in recent days to reduce borrowing costs. The two countries sold EUR 26.75 billion of debt in the last week and yields fell favorably at their first auctions of the year. The docket though looks worrisome. Italy faces more than EUR 50 billion of bond maturities in 1Q2012, accounting for about a third of the 1.2 trillion Euros that EuroZone governments must raise this year to finance rollover debt. The lost AAA status should mean that investors will be locked out from buying debt from France, the EFSFund, and the European Investment Bank. It is unclear the impact. See the Bloomberg article (CLICK HERE).

◄$$$ GREECE IS TO ATTEMPT SELLING BONDS BACKED BY STATE PROPERTY. THE INTEREST PAID (BOND YIELD) OVER 100% AND 200% ARE NOT WORKING, SO DESPERATION HAS SET IN. THE TACTIC DID NOT WORK DURING THE FRENCH REVOLUTION, NOR DID IT WORK TO END HYPER-INFLATION IN WEIMAR GERMANY. MEANWHILE, TALKS ON NEW BOND DEVICES HAVE STALLED, SINCE THE BROAD LIQUIDATION CARD IS NOT PERMITTED. THE CLOCK TICKS TOWARD MID-MARCH WHEN THE NEXT GREEK DEBT PAYMENT MUST BE MADE. $$$

The financial crisis has destroyed Greece. Their government bond market is totally ruined. Their banks are gutted, with the public making runs on them making withdrawals. Their nation's prized assets are up for grabs. The crisis strewn nation of Greece plans to sell bonds with state property as collateral to buy back sovereign debt, in hopes to postpone a privatization drive. The market conditions are not favorable. The move steeps with desperation amidst the foul odor of charred ruins. Bear in mind that Weimar Germany introduced the RentenMark, an interim currency backed by real estate in the 1930 decade. Greece is trying to continue borrowing by backing bonds with land while staying with the Euro currency. The banking elite of Europe do not wish to see Greece depart the Euro Monetary Union. Instead they wish to seize whatever Greek assets are not nailed down. Back seven decades ago, Germany tried in vain to end hyper-inflation by creating a more hard backed currency. They had forfeited all their gold after World War I. Both eras and stories involve land, to be sure. But all else are opposite. Watch for a curious eye as the Chinese might go shopping. See the Breitbart article (CLICK HERE).

The brokenness of the Greek situation is given bold emphasis every time a conference is held to solve it. Last week, Greece's creditor banks broke off talks after failing to agree with the government about how much money investors will lose by swapping their bonds. No accord can come of substance since liquidation of the Greek Govt bonds would force liquidation of many big European banks. It will not be permitted, and thus the festering wound lingers in open view. BUT MAYBE SUCH A COMPREHENSIVE PLAN COMES IN MID-MARCH. Greece cannot submit to becoming the first sovereign default. Watch as a Goldman Sachs stooge is installed. Oops, already happened (see Lucas Papademos). Officials and creditors agreed in October to implement a 50% cut in the Greek debt securities valuation. On the table is a hefty EUR 100 billion (=US$127 bn) in debt forgiveness. The mini-Maastricht also called for reducing Greek borrowing to 120% of their GDP. Never gonna happen. No agreement on new bond details can be hammered out, like bond yield paid out. But the passage is nigh in their Parliament. Greece is to pass law that could force reluctant creditors into the bond swap, according to the Greek daily newspaper Ta Nea.

Without a new bond swap, Greece cannot receive the next aid package. Hans Humes of Greylock Capital Mgmt put it well. He said, "The sticking point is actually coming down to what the interest rate would be on the new bond. If the talks fail and Greece defaults, there will be a lot of contagion. The ball is in their court. If you want to do something to head off what could be a disorderly process, now is the time." Time is fast running out, as is patience. The D-Day seems to be March 20th, when the next EUR 14.5 billion bond payment is due by Greece. Some analysts have said hedge funds holding Greek Govt bonds may resist the deal, as they strive to reap greater profit by triggering payouts from Credit Default Swaps. But the reality is a corrupted process, where CDSwap payouts are blocked by redefinitions and contract scoff. The talks ended in frustration, since no solution can occur. Talks will resume so as to maintain appearances. The key is liquidations, never discussed, never permitted. Bill Gross fully anticipates a Greek Govt debt default. He expects them to fail to meet their debt obligations. Standard & Poors cut the Greek grade to CC in July, translated to mean their debt is highly vulnerable to nonpayment, based on the company's rating definitions. Such a wretched low rating is equivalent to clean toilet paper. See the Bloomberg articles (CLICK HERE & HERE).

◄$$$ GERMAN LEADERS ARE OUT OF TOUCH WITH BOTH REALITY AND THE POPULAR DESIRES. THE DEALS STRUCK, THE BANK TRAFFIC, AND THE ASSET COMMITMENTS ARE ALL MADE WITHOUT POPULAR APPROVAL BY THE ELITE PENTHOUSE TIER. THEY SCOFF AT THE PEOPLE. THE GERMANS WANT OUT OF THE EURO CURRENCY. $$$

Cold, heartless, and indifferent to the plight of the people, German Chancelor Angela Merkel repeated in a public radio interview her expectation that Greece honor its debt cutting commitments. She also stressed the importance of honoring pledges to write down debt made in October. She expects the Greek Govt to implement the measures agreed upon. She also urged the Intl Institute of Finance, the negotiator for the banking industry, to keep to its commitments too. They grudgingly agreed to a 50% writedown of Greek debt for banks, without doubt the biggest stumbling block for two full years. Big banks do NOT want to declare, accept, and register major losses. The losses are much greater than the proposed or negotiated writedowns. Most Greek Govt Bonds are down over 75% to 80%. See the Bloomberg article (CLICK HERE).

The hypocrisy is thick. Back in August, certain EU nations imposed a ban on bank stock sales. No visible positive effect has been seen, nor has the ban been lifted, even though called temporary at the onset. Next came Merkel's public admission that she would consider calls for legislation to bar institutional investors such as insurance companies from selling bonds when ratings were downgraded, or fell below investment grade. The German Govt is entering the bond market controls. This is a form of capital control. Before long the entire market will be a closed store with Euro Central Bank dominance, a travesty to the market. insurance companies are being targeted. Just like AIG, they are being completely ignored for the time being. Tyler Durden repeated his call that Allianz & Generali (A&G) is soon to be the European equivalent of AIG, whose demise also began with that one particular rating agency downgrade. See the Zero Hedge article (CLICK HERE).

German anger is rising fast, as the consensus is building to exit the Euro currency. The finance minister Schaeuble has objected to the new role taken by the Euro Central Bank. He believes serving as buyer of last resort would not calm the bond market, and the ban on Euro region bond sales were not a solution. Enter important corporate executives. They see the European project as going down the road of perdition and failure, with the damage from staying in the Union growing. Wolfgang Rietzle is the CEO of Linde, an industrial conglomerate. He is a former BMW board member and former head of Jaguar and Land Rover. His views echo the sentiment that grows against the Euro. Wisdom is thick in noting the negative impact of central bank involvement. Reitzle calls a complete EU breakup unlikely, but believes Greece is not in a position to service its debt. He objects to forcing Germans to pay more than 50% taxes to help fund other EuroZone countries, certain to erode the will of the German rescue measures. He calls the year of destiny for the Euro not to be 2012, but instead three to four years down the line. Any recession in Europe in his view would only impact a 30% component of German revenues.

Rietzle believes motive for reform goes away with further aid packages. He said, "I fear the willingness of crisis countries to reform themselves is abating if, in the end, the European Central Bank steps in. If we do not succeed in disciplining crisis countries, Germany needs to exit [the Union]. Of course it would lead the new currency, DeutschMark, the North Euro or whatever it is called, to appreciate in value. But it would be by a lesser amount than feared. Although this would lead to higher unemployment in Germany because exports would take a hit, pressure would increase to become more competitive. The country is not in a position to restructure itself in such a way that it can remain in the currency union. In the medium term Greece needs to exit. And the writedowns on Greek debt will not be between 50% to 70%, but in the end will be written down by 100 percent." Finally some direct frank talk. The Greek Govt Bond losses will be total, much like the Jackass has been saying for a long time. The strongest and weakest nations must depart the Euro Monetary Union. See the Zero Hedge article (CLICK HERE). Notice Rietzle mentioned a Nordic Euro currency. He is wrong about only a small rise in its valuation. It will rise greatly over time, and render tremendous damage to its alter currency, the Latin Euro. Think arbitrage. Think bids to purchase German exports.

A colleague with a keen perspective summarized the Greek direction in his sassy manner. BobO in Kansas wrote, "Merkel expects Greece to implement the measures it has agreed upon. Except the Greek people have not accepted those measures. She is obviously been too occupied to take notice. Sequestered with other EU leaders in those five-star hotels, trying to save the Euro currency from death and to further the European federalism movement, driving up the costs of leadership. The people have consistently protested against them, even were openly denied a simple Yes or No vote in Greece. Their democratically elected government was removed from power in Italy, when it dared to demand such a vote. The debt deals were agreed to by an unelected puppet government, hand picked and installed by the European Union and the Euro Central Bank, a government headed by a person who comes from Goldman Sachs, the nexus of thought responsible in good part for Greece's problems, if not all of Europe. Governments are ran for the sole benefit of the 1% elite."

EUROPEAN BANKS ON THE EDGE

◄$$$ EUROPEAN BANKS ACTUALLY OBTAIN LOANS FROM CASH-RICH FIRMS, NOT A MISPRINT. CASH RICH CORPORATIONS ARE SIGNING UP FOR REPO DEALS THAT BRING FRESH FUNDS TO STRAPPED BANKS. SOME COLLATERAL IS GIVEN BY THE BANKS DURING THE PROCESS. BANKS SO DISTRUST EACH OTHER THAT THEY HAVE TURNED TO THRIVING CORPORATIONS. $$$

Major brand names like Johnson & Johnson, Pfizer, and Peugeot are among the corporate funding agents to bail out large distressed European banks. It is an incredible role reversal between clients and lenders. They are called repo deals for short-term secured lending. Third party firms administer the collateral in the tri-party repos. The usual traditional participation in such deals is 2% to 5% of the repo market, but due to the deep distress and funding needs, Euroclear estimates that up to 25% of the tri-party market was on provided by companies. The tri-party market grew at 22.3% in the first half of 2011, according to the Intl Capital Market Assn. In a repo trade, one party buys collateral from the other, with the obligation to sell it back at a designated future date and for a slightly altered price, the so-called haircut. In the process, the seller (company) provides cash to the buyer (bank). One must wonder what rubbish assets the broken banks put up as collateral to the thriving companies. The total European repo market was worth EUR 6.2 trillion (=US$7.88 tn) in the first half of 2011, from the same ICMA source in a September survey. The vast majority of the repo business conducted was between banks, and across banks to central banks. The big banks are insolvent, leading to grand distrust among themselves. Their inter-bank processes are broken.

Moodys conducted a survey to measure cash levels. In aggregate across the continent, the European companies held a total of $872 billion cash by July 2011, which banks have tapped in such deals. The biggest European companies are sitting on huge mounds of cash. British Petroleum has over $20 billion, as does Volkswagen. Although loans from the strong firms is typical in tapping the reliable cash flows, corporate treasurers are typically wary of sharing information about daily cash management. The above named firms declined to comment on details. Central banks actually have been cracking down on such shadow banking activity, deals made in secrecy. Money laundering could be involved at times. The central banks use the ruse of avoiding a repeat of the 2008 financial crisis in order to pry open data from the deals. Central banks are the clearing houses for narcotics transactions, like JPMorgan, the USFed operating agent. See the CNBC article (CLICK HERE).

◄$$$ ITALY HAS IMPOSED CAPITAL CONTROLS ON THE BANKS. MOVEMENT IS BEING CLOSELY MONITORED. MONEY CANNOT BE WITHDRAWN IN VOLUME. BORDERS HAVE CAMERAS AND REGISTRIES. ITALY HAS GONE FASCIST WITH BLAZING SPEED. ITS BANKS ARE READY TO CAPSIZE, LIKE THE CRUISE LINER. $$$

The effects of the Fascist Business Model are being acutely felt in Italy. Nothing goes without monitor. The credit card companies must report to the fiscal authorities all transactions carried out by Italians, in the country and abroad. Limits have been imposed on bank withdrawals of 10,000 Euros, equal to US$13,000. Cameras have been installed by finance police at the border checkpoints with Switzerland to register all license plates. In addition, currency sniffing dogs have been deployed at the border. The Monti regime can be seen imposing Fascism, plain and simple. Their opening salvo was to attack private capital by raising the capital gains tax. The situation is degrading rapidly. The wealthy of Italy have a new game to play: to remove money from Italy and the escape themselves. Consider the political regime details. In December an unelected government was installed. Notice the past tense always in news stories, never to identify which entity does the installation. Think supra-national trillionaires. Those in power have no accountability, no mandate, nothing official, and no fixed timeframe to serve. Their priorities and allegiance can only be inferred. The technocrats in Italy distinguished themselves by putting down major corporations when they grew too powerful, by having top colleagues with communist leanings, by bearing Goldman Sachs pedigrees, and by their fervent beliefs in the supremacy of the state over the individual. For example, advisor Romano Prodi once described in 2001 the long game being played, where the Euro currency will make obligatory a new set of economic policy instruments. He cited a future day during a crisis and new instruments will be demanded. See the Zero Hedge article (CLICK HERE).

The irony is thick, the tragedy stirring. The Italian cruise liner Costa Concordia went aground, a fitting symbol of the nation of Italy succumbing, a toppled elected regime in a sea of liquidity. Individual decks named after nations went underwater, liquidity of a different type. Parallels between the financial structure and ship structure, along with perceptions and reactions, are interesting. People believing such an accident as incredible in the 21st century need to awaken to reality on the mainland. Italians will make the same comments when their banking system collapses, in the wake of their elected political leadership being dismissed from the helm. The cruise liner was badly off course. So is the Italian banking sector, hardly alone as the Spanish fleet of banks is also off course, taking on water, the banks derelicts at sea. The captain was allegedly in a bar with a blonde honey when the accident occurred. Memories should be pricked of ex-PM Berlusconi and his flamboyant management style of the Italian economy, and his titillating bunga bunga parties.

The ship crew clearly was not trained for such accident. Neither is the Italian system prepared to handle rough waters, given the most egregious nepotism in all of Europe. The site of the cruise ship run aground off the western coast by the island of Giglio is chilling. In all, 4000 people were on board, including 1000 on staff. The toll is 6 people confirmed dead, about 40 people treated in hospitals, and about 29 unaccounted for. Some people are believed to be housed in private homes on the small island, where they reached land. Half of million gallons of fuel are being retrieved before salvage operations begin, in an effort to avoid an environmental disaster of contaminated beaches. Contrast to the toxic paper running through the Italian banking system. The ship's insurers may be liable for total costs of about EUR 405 million (=US$512 mn) as a resuilt of standing policies. Unlike the ship liability, the Credit Default Swap contracts, the debt insurance flagships, are forbidden to kick in for awards at docks. The ship's problem might be more low hull draft and high center of gravity ship design, much like the inefficient stream in Italian business practices and the high bank leverage. See the BBC article (CLICK HERE) and the Bloomberg article (CLICK HERE).

◄$$$ THE MAFIA HAS A TUCKED ROLE IN ITALY, THE PREMIUM BANKER. LENDING EXTORTION HAS BECOME A NATIONAL EMERGENCY. TIGHTER BANK STANDARDS HAVE SQUEEZED THE SMALL BUSINESS SECTOR, LEAVING THEM TO TURN TO THE MOB FOR LOANS. THINK LOAN SHARKS. $$$

Organized crime has tightened its grip on the Italian Economy during the economic crisis. The Mafia is the country's biggest and perhaps its only strong bank. Smaller companies are being squeezing. A report was released by the anti-crime group SOS Impresa, calling the situation a national emergency. Over 200,000 businesses are involved with extortionate lenders and tens of thousands of jobs had been lost as a result. The Italian Mafia generates EUR 140 billion (=US$180 bn) in annual revenue, and profits over EUR 100 billion. With EUR 65 billion in cash, the Mafia is the nation's premier bank. Typical victims of extortionate lending are small businessmen struggling to avoid bankruptcy. The report cited the victims as being traditional retail niches like food, green grocers, clothes or shoe shops, florists or furniture shops. A separate report from small business association CNA cited 56% of companies had seen banks tighten their lending requirements in the past three months. Through their professions, the mob managers know the mechanisms of the legal credit market, and often know the financial position of their victims perfectly. See the Reuters article (CLICK HERE).

◄$$$ BIG BANK STOCKS DID HORRIBLY LAST YEAR. ONE MUST WONDER IF BANK EXECUTIVES SAW THE STORM COMING, AND SHORTED THEIR OWN STOCKS, MAKING OUT LIKE BANDITS. THE LOSSES IN EQUITY VALUE WERE ACROSS THE SECTOR UNIFORMLY. BANK ANALYSTS WERE BADLY WRONG, BUT THEY ARE JUST AS OPTIMISTIC THIS YEAR. EXPECT THE WORST, A REPEAT. $$$

The bank stock performance last year was somewhere between atrocious and miserable. It almost came with a gloat of pleasure, except that the financial system touches all aspects of life. Misery, worry, and anxiety accompany such unfolding of events. Be sure to know that the biggest accounting fraud came from JPMorgan, the king. They pass off losses to the USFed, never properly account for COMEX gold & silver losses, and much more. The big question is which bank dies first. Either Bank of America or Societe Generale, my guess, perhaps a big Italian bank not displayed below. A better question might be which bank executives shorted their own stock and profited with wild success. They obviously have access to accurate balance sheet information, unlike the falsified data given to the public. My guess is probably most in New York and London shorted their own stock in private accounts, the corrupt financial nexus. The hilarious part is the bank analyst projections. Last year they collectively forecasted a 32 cent per share profit for the sector. The reality was minus 18 cents per share, a grandiose loss amidst ruin. The same clowns offer EPS estimates of +57cents per share in 2012, which should be taken with less than a grain of salt and several sheets of clean toilet paper. They are paid to deceive.

◄$$$ MONEY MARKET FUNDS ARE FLEEING EUROPE, IN RETURN TO THE UNITED STATES. THEIR FLIGHT HAS CREATED BIG HOLES IN EUROPEAN BANKS, PART OF THE ACUTE BANK DISTRESS. THIS IS ONE MORE REASON WHY THE MAJOR CENTRAL BANKS WILL NOT HIKE OFFICIAL RATES. ANY REALIZED DIFFERENTIAL WOULD ENCOURAGE MASSIVE FLIGHT OF FUNDS. $$$

Money market funds are fleeing Europe. Despite the massive outflow, their banks still hold around $500 billion in the form of European bank bonds and certificates of deposit (CDs). Therefore, the Federal Reserve will do everything necessary to prevent a collapse. A ruin of both banks and depositors would be very ugly. A string of bank failures that results in tremendous new losses to US money market funds cannot be permitted. So the spigot will remain wide open by the central banks. They risk triggering some nasty inflation or possibly a panic out of the Euro. They risk a panic out of paper money altogether, and into Gold. The banks are happy to tap the central banks and the newly minted government backed bonds. While much focus has been on the Euro Central Bank accepting the new so-called technocrat guaranteed bonds, the key point in my view is the need to avoid any rate hike whatsoever. Not only do governments need the low borrowing costs, but the banks cannot afford bank runs on deposits like with money market funds. Any interest rate differential presented between say, the EuroCB and the USFed, will be pounced upon. The effect will be vacated banks showing their true insolvency.

◄$$$ PORTER STANSBERRY HAS MADE A BOLD CALL, THAT UNICREDIT OF ITALY WILL SUFFER A FAILURE AND CAUSE A CATASTROPHIC EVENT. SHORT-TERM FINANCE NEEDS WILL FORCE THE ISSUE IMMINENTLY. THEIR LEVERAGE IS TOO GREAT. THEIR SOVEREIGN BOND LOSSES ARE TOO GREAT. THEY WILL BUST VERY SOON. $$$

Porter Stansberry is a fine analyst, the editor of a longstanding newsletter. Below are several outlined key points he makes in arguing the case of the wrecked Italian banking system. Porter anticipates the first big important bank failure to be UniCredit. The nation Italy stands as the world's third largest sovereign borrower. They do not have the money to bail out the bank, leaving the burden on the Euro Central Bank. Almost every major banks in Europe is insolvent, and recently have had interrupted access to a large source of additional funding, namely US money market funds. These funds are leaving Europe fast, creating a virtual run on the European banking system. This next phase of the crisis is underway. His steady call has been that Italy's UniCredit would be the first catastrophic bank failure of the crisis. UniCredit has over EUR 1.2 trillion in assets, but only EUR 74 billion in equity. Much equity is bogus, like EUR 24 billion in goodwill and tax losses. Hence they are leveraged in a 24:1 ratio after those removals. Given their huge European sovereign debt position, only a 4.1% bond loss would wipe out the bank.

Porter's research estimates UniCredit will undergo losses of 10% or more on its European debt, resulting in losses of at least EUR 100 billion, dwarfing its equity. The bank cannot appeal to private investors or to the Italian Govt for aid, closed doors. The bank cannot rely upon private investors for financing either. UniCredit has more bonds coming due in 2012 than any other major European bank, $51 billion in all. Its bonds are currently trading at prices that reflect four notches below investment grade and eight notches below its official Moodys A2 rating. A desperate move has come with a registered secondary stock issuance, the equity offering likely to fail in a very visible manner. It could go quickly downhill afterwards.

Stansberry expects this next phase of the financial crisis will be far worse than the Lehman Brothers failure. UniCredit could be the first of many bank failures. What should unfold is the failure of an entire system, the largest banking system in the world. The European banking system has approximately EUR 55 billion in assets, and is four times larger than the US banking system. It is overloaded with sovereign debts never to be repaid. A catastrophe is ready to occur, the floodgates ready to burst. The portal for the disaster will be money market funds held by the US investors, who are completely unprepared. When asked about the UniCredit risk of contagion spread across Europe, a German banker source replied simply that the Italian bank failure will be followed by Deutsche Bank in Frankfurt Germany. UniCredit does not have the largest bond exposure, but its short-term funding needs make it the prime target next. Intesa has the largest exposure. See the layout of bond holdings and maturity durations. Notice the huge three month and one year maturity for UniCredit. The clock is ticking loudly.

CENTRAL BANKS WITHOUT TOOLS

◄$$$ THE RESPONSE TO BANK FAILURES IS A CORNUCOPIA OF PATHWORK SOLUTIONS, NOTHING COMPREHENSIVE, CERTAINLY NO ACTUAL REMEDY. JUST A STREAM OF NEW INFLATION AND NEW DEBT. DESPITE THE LAME EFFORT TOWARD SOLUTION, THE CRISIS BUILDS AND RISKS MOUNT. AT RISK STILL IS A MASSIVE CHAIN OF BANK FAILURES. WHEN THE USFED AND EURO CENTRAL BANK HAVE HAD THEIR FILL OF TOXIC PAPER, THE SYSTEM WILL IMPLODE. $$$

New bonds do not repair a system with toxic bonds. The responses have been as magnificent as they are ineffective and misdirected. Swap lines from central banks have gone bigger. Direct aid packages for individual banks have been huge. Gold lease lines have been enormous. Rescue packages have been numerous and fleeting, if not vaporous. We have seen a tremendous piecemeal patch job. The systemic fix is heretical, bound in a serious solutions reeking of hyper monetary inflation, pocked by poison pill demands, littered with asset seizures, all bent on elite power grabs. Yet the patch job blows off course if the collection of corrupted bankers lose control of the situation. The big issue is whether the crisis is contained. In no way it is contained, not when debt and inflation are the dressings and ointment applied. Losses worsen as the bond markets deteriorate further and the property market deteriorates further. The major risk is for a string of bank failures when some seemingly minor bank goes out of control from lack of attention. Given that hundreds of banks are on the ropes, it is just a matter of time.

What bankers and economists miss is the destruction of capital from added debt and unfettered inflation. The resident economies cannot sustain the past debt, let alone the current debt. The illusion is that near 0% can permit the debt growth until the economies recover. They will not recover. The gigantic recapitalization of the banking systems, country by country, cannot happen while capital is being retired and killed, not when people continue to lose jobs. The maestros can point to confidence and volatility all they wish, but the problem is insolvency and capital ruin. The system will implode when the central banks halt their intervention into the bond market. Price inflation will arrive again, when officially admitted QE programs are reinstated. They will return.

◄$$$ TOTAL GLOBAL GOVT BOND FUNDING REQUIREMENTS TOTAL $7.6 TRILLION IN THE NEW 2012 YEAR. THE BROAD BOND SQUEEZE WILL BE ON, AS ALL PRIVATE SOURCES WILL BE STRAINED BADLY. THE ECONOMIC CONTROLLED DEMOLITION CONTINUES, TO KEEP PRICE INFLATION UNDER WRAPS, BUT ALSO TO INSTALL UNELECTED LEADERS ONTO THE BROKEN STAGES. $$$

Governments of the leading global economies face $7.6 trillion of debt maturing this year. Most nations outside the United States must contend with higher borrowing costs. Led by $3 trillion in Japan and $2.8 trillion in the United States, the amount coming due for the Group of Seven (G-7) nations plus Brazil, Russia, India, and China (BRIC) is up enormously. The new funding requirements are up $200 billion from a year ago, according to Bloomberg data. The 10-year bond yields are higher for at least seven of the countries. Sovereign debt finance requirements will crowd out corporate and municipal bonds. That no economists seem aware of an impossible recovery amidst restricted credit supply is astonishing. Keep an eye on major municipal defaults. The clarion call by Meredith Whitney for crisis in 2011 seemed early in hindsight. With Southern Europe in tatters on the sovereign debt front, and the US bond market sucking the capital life out of the USEconomy, prospects for 2012 look dim. Her call might come true in 2012, despite the criticism from the established crowd of Wall Street boot lickers. See the Bloomberg article (CLICK HERE).

The pressure for putting the printing press to work toward debt monetization will be much greater this new year. It was not slight in 2011, a year that started with open QE programs and ended with hidden QE programs. The devious nature of keeping it secret will be maintained. Worse, let's watch the high jinx game of chicken being played on major economies. The powers are permitting a nasty economic deterioration in order to keep down commodity demand and price inflation. However, their larger motive might be to cause the chaotic breakdowns in order to fill prime minister posts with henchmen bearing Goldman Sachs pedigrees, all of course un-elected. My eyes are still on Italy, which gave Monti the vote of confidence, but that was forced. The Italians are notorious for fighting bitter battles with obstinate figures. My firm belief is that Monti will be sabotaged. Even though an Italian, he will not be shown respect since not elected.

◄$$$ OBAMA REQUESTED A $1.2 TRILLION LIFT IN THE USGOVT DEBT LIMIT. NOTHING HAS BEEN RESOLVED. COSTS CONTINUE TO SPIRAL. THE SUPER COMMITTEE WAS A GRAND FIASCO. THE DEFICITS ARE LEADING THE NATION INTO THE ABYSS. $$$

President Barack Obama formally notified Congress last week that that the USGovt needs another $1.2 trillion in borrowing authority. The written certification to raise the debt ceiling to $16.394 trillion last August was part of an accord between the White House and USCongress. The added $1.2 trillion is sufficient to keep the broken USGovt operating until the end of the year, after the presidential election. The usual gimmickry with account borrowing and shuffles laden in familiar extraordinary measures employed by the USDept Treasury would take the next debate over the debt limit approval into the spring of 2013. The USHouse is expected to vote on a resolution of disapproval on January 18th, according to the Republican opposition camp. The haggling extends to the USSenate too. The executive branch has consistently punted on difficult decisions. The USCongress did its part in the stalemate, rejecting an Administration proposal made in September to trim the long-term deficit by $3 trillion beyond the $1 trillion that was agreed to as part of the deal to raise the debt ceiling. The battles continue on entitlement cuts on one side and tax hikes on the other side. They are as far apart as Hitler and Stalin, from the right and left, an accurate indication of the political polarization without much public recognition. The USDept Treasury has been relying on typical accounting maneuvers to ensure that the previous $15.194 trillion limit was not breached. Since the budget law was approved, the debt limit has been raised twice, by a total of $900 billion. See the Bloomberg article (CLICK HERE).

◄$$$ USGOVT DEBT MARCHES ONWARD AND UPWARD IN INSANE FASHION. DEBT GROWTH IS UNSTOPPABLE. THE DEBT LIMIT WILL BE HIT EVERY SIX MONTHS WITHOUT RESOLUTION. NO POLITICAL RESOLVE IS EVIDENT. EVEN THE MAJOR STATES CANNOT ESTIMATE THEIR NEW DEBT LOAD. THE INSANITY WILL BE PROLONGED UNTIL THE WORLD REFUSES TO ACCEPT THE USDOLLAR. $$$

The Obama Admin has formally requested a raised debt ceiling again. Confusion is to be expected, since a deal reached in August was supposed to put the problem to rest. It only bought time. Time is up, again. The previous accord raised the ceiling to $16.4 trillion. In follow-up, another patch deal was struck in September, which put the ceiling at $15.2 trillion but would ultimately take the debt ceiling up to $16.4 trillion, contingent on budget cuts. None were made, as the Super Committee was a public charade failure. With the current limit at $15.2 trillion, President Obama must be given Congressional approval in order to utilize the final $1.2 trillion of capacity. The USGovt wreckage continues, pushed up the debt by $200 billion per month, from $15.2 trillion to $14.2 trillion over five months, an exercise in insanity. On a 30-day calendar month, that comes to $278 million per hour. The ultimate extension in the limit should enable the USDept Treasury to operate through 2013, after the elections. Theoretically agreements on massive budget cuts will be signed into law, or not. USGovt spending persists at a record rate, while tax revenues are coming in lower than was forecast by the budget officials. In my view, one of the indisputable honest statistical series is the payroll tax revenue stream, an ultimate indicator of economic health. Its decline is testament to an ongoing stubborn recession.

The dire deficit disaster extends to the states. Several remain in extreme straits. California serves as a great microcosm of financial distress and unfixable situation, even miscalculation. Two weeks ago, California announced that its current fiscal budget deficit is $2.5 billion larger than was forecast only six months ago. They are truly incompetent in even estimating the size of their problem. The amazing part is that their several thousand agencies and offices stay open on the Left Coast. The United States as a country will not stop borrowing to spend until the rest of the world no longer accepts the USDollar. The day is coming, complete with monumental systemic risk. Any nation that threatens refusal will be branded a rogue, isolated, suffer internal violence, and given a war. Precedents are as long as your arm.

◄$$$ USDEPT TREASURY ADMITTED NO TOOLS LEFT IN THE MONETARY BAG. A DEAD END LIES AHEAD, AS NEAR 0% OFFICIAL INTEREST RATE WILL CONTINUE TO PERSIST FOR A FEW YEARS. THE USFED IS STUCK IN A TRAP OF ITS OWN MAKING. THE MANAGED MONETARY GROWTH IGNORED INFLATION, IGNORED BANK RISK, IGNORED DEPENDENCE UPON ASSET INFLATION, AND ADVOCATED PHONY BANK ACCOUNTING. NOW THE USFED IS THE BANKING SYSTEM, A TRAGIC CORNER WITH NO EXIT STRATEGY. THE USFED IS STUCK IN MONETARY QUICKSAND. THE FOREIGN CREDITORS MUST REALIZE IT. $$$

The admission was the tip of the iceberg. Treasury Secretary Geithner was honest and direct, but surely not comprehensive and sincere. Recall in the summer months of 2009, the reference to an Exit Strategy from the ultra-low near 0% official rate was constant. It was pure deception, or else the USFed was grotesquely incompetent. They must have realized the corner they were in on monetary policy. So the diminutive finance minister from the broken USGovt whose patient Uncle Sam is stuck in the Intensive Care Ward, went to creditor nation China. He admitted that the United States has no more tools or ammunition with which to fight the extraordinary financial crisis. They might be without tools, but they will not stop them from ramping up the admitted bond purchases, especially those related to mortgages. The USTreasury purchases are well hidden, of enormous volume, and never-ending. The Jackass has called the ongoing policy a Global QE for months, coordinated with several other foreign central banks, all desperate to avoid having their currencies rise. Almost blackmailed by their export trade risk, foreign creditor nations acquiesce to buying USTBonds, thus preventing a domestic currency rise to threaten their trade. The purchased bonds act like vendor financing for the entire USEconomy. The USFed has not been alone therefore for several months. Talk has been laughable about the debated yes or no on QE3. It never ended.

Two major effects are at work. The USFed can never hike short-term rates. Doing so would torpedo the USGovt debt structure and lay it to waste quickly. Doing so would even set off derivative explosions in succession rapidly. Futhermore, the USTreasury Bond complex will become more and more dominant as time passes, since the ultra-low rates kill capital. The USFed has put to practice a policy to permit the USEconomy to deteriorate in order to control prices. The 0% rate and the benign neglect combine to force capital into retirement and to shut down marginal businesses that cannot turn a profit. Notice the talk of central bank purchase of mortgage bonds, a case in point. That market segment has been stuck in death throes for over three years. The USTBond game will eventually be the only credit market left standing. Then comes the debt default tragedy with climax. A year from now, and beyond, discussion will continue stuck on USFed bond purchase with a 0% background. It is permanent. Regard it as monetary quicksand. See the FOREX Live article (CLICK HERE).

Some perspectives are worth citing, steeped in reality. As Craig McC in California points out, "What does anyone expect Geithner to say? If he says QE to Infinity, the Chinese dump USTreasurys. So he buys time lying while Ben keeps ramping up the printing press. The Chinese are not simpletons. One must wonder if they laughed at him just like the Chinese university students did a couple of years ago before a full audience, when he called the US financial system stable." Catherine Fitts pitched in with a reminder on the domestic interior front. The urgent needs of the states might soon come front and center. She said, "Bear in mind that over 90% of the counties in the United States have had declared emergencies. That means the Fed can bring in and purchase every burned mortgage that any bank has on the books or can invent through FHA and VA, and probably also Fannie & Freddie, now that they have been nationalized. There are a lot more rabbits that must be pulled out of the hat."

◄$$$ USFED SWAP LINES JUMPED 59% IN A SINGLE WEEK AT THE END OF DECEMBER. THE CHIEF BENEFICIARIES ARE EUROPEAN BANKS, WHICH WORK CLOSELY WITH THE EURO CENTRAL BANK, USING A NEW MONETARY TOY TO HELP THE BIG BANKS. JUST LIKE WITH THE USFED, THE EURO-CB HAS GONE BERSERK WITH ASSET PURCHASES. THE EURO CENTRAL BANK IS ON AN UNSUSTAINABLE COURSE ON ITS BALANCE SHEET EXPANSION. BOTH THE USFED AND EURO-CB ARE DOOMED TO BECOME TOXIC INDUSTRIAL VATS. $$$

In addition to the Europeans, the Swiss and Japanese gorged themselves like at holiday dinner tables. But they take down toxic turkeys. Foreign central banks grabbed USDollars with both hands, taking as much of the two-week maturity FX swap lines as possible on the final week of the 2011 year. The USFed has been a generous host. Their total outstanding USDollar Liquidity Swap Facility jumped from $62.599 billion to $99.823 billion, almost 60% during the week ending December 28th. Equally out of control is the European Central Bank, the buyer of last resort for toxic sovereign bonds. Enter a nifty device to enable endless big bank credit via a new class of bonds. That any financial firm or investment fund would purchase such bonds is perplexing, knowing what is coming akin to the Greek marathon, or better yet the Battan Death March. If the EuroCB did not buy Italian or Spanish or French bonds, they would implode in a matter of a few months. Instead, they will implode in a matter of several months, perhaps more like 12 to 18 months. The USFed and EuroCB are destined to become overgrown industrial dumping grounds of toxic paper. No economies under their watch can possibly recover or even remotely prosper.

Colleague Aaron Krowne of the Mortgage Lender Implode website offered some added insight. He wrote, "Last week the Goldman Sachs technocrats in Italy issued their first private, government guaranteed bank debt, with the aid of their new December 4th law. Not only does this debt sell better by virtue of being government backed, but the EuroCB will take it in unlimited fashion as collateral. So Unicredit could simply take out $100 billion in debt with this new government backing, and those who lend the money to Unicredit can swap the loans out to the EuroCB for fresh cash! It all comes back to the ECB! So now they can have perpetual suspension of crisis as long as they are willing to grow the ECB balance sheet. This is what clearly is happening. They do not seem to need to obtain loan approvals from those stubborn Germans for outright monetary printing. They can keep issuing government backed toxic waste, in the same style as Fannie & Freddie style, then dump it on the Fed (I mean ECB)!! The EuroCB is printing against trash collateral, just like the Fed." It seems the two central banks will soon hold as collateral the majority of bank equity and home equity in the march to collectivism, otherwise known as Marxism. See the Implode Explode article (CLICK HERE). Consider that the bonds might be vehicles from which to wrest control of each failing government, imposing a Goldman Sachs captain as Prime Minister like in Italy.

◄$$$ BERNANKE CAN BE VIEWED AS GIVING SIGNALS OF RECOGNIZING HIS FAILURE TO REINVIGORATE THE HOUSING MARKET. HE SEEMS UNABLE TO COMPREHEND THE PROBLEM OF BANK SYSTEM INSOLVENCY AS AN ECONOMIC DISEASE. THE PAPER MONETARY SYSTEM IS THE SPREADING CANCER. THE FLIP SIDE TO HOUSING MARKET DEPENDENCE AS AN INFLATING ASSET IS THE MILLSTONE ON THE USECONOMY WHEN THAT ASSET SUFFERS FROM CHRONIC DECLINE. THE NEW USFED SIGNAL TO DOUBLE DOWN ON A BAD HOUSING BET ASKS GOVERNMENT TO HELP WITH MORTGAGES. $$$

USFed Chairman seems to be looking into the mirror and seeing failure on the housing market. Despite the US central bank purchase of $1.25 trillion in mortgage bonds since January 2009, the value of US housing market has fallen 4.1%, hardly what they planned for. In fact, the housing market is down 32% from its 2006 peak, according to an S&P/Case Shiller index, which is conservative. The central bank is prepared to purchase another $200 billion this year in mortgage bonds, in offset of over 20% of new loans, as it reinvests debt that matures. Some USFed officials give credence to additional purchases that Barclays Capital estimates could total as much as $750 billion. Even as Bernanke and fellow US central bankers consider expanding their efforts, they acknowledge their inability to turn around the housing market. They have begun a new tack, to urge greater coordinated assistance from the USGovt. The added purchases clearly represent a double down on a bad bet, as the USFed balance sheet has ballooned upward, laden with toxic paper, most of which is not worth 60% of original cost. Bernanke sent a research report to the USCongress in the first week of January, concluding that ending the housing slump is necessary for a broader recovery. Such an obvious conclusion!

Frustration has given way to disappointment. The dullard economics professor seems not to comprehend the problems plaguing the USEconomy. Back in 2003 to 2006, the USFed cheered on the housing bubble, in a celebration of the economic dependence upon an asset bubble for cash withdrawal to feed consumption. Not investment, but consumption. Investment revitalizes an economy, while consumption drains it. They do not comprehend the deleterious nature of consumption. Buying trinkets and stuff made in China is not productive. Starting a business with sweat and new equipment is productive. At the root of the quagmire is the insolvent banking system, which the USFed has pampered with generous aid and encouraged to doctor the financial books. The huge investment on toxic mortgage bonds has not revived the housing market, no more than a fleet of bicycles helps a battalion of legless war victims. Stephen Stanley is chief economist at Pierpont Securities and a former Federal Reserve Bank of Richmond research staffer. He said, "The Fed is definitely frustrated and disappointed. I am sure they would have anticipated they would have gotten more bang for their buck."

Chairman Bernanke is given clear signals of renewed willingness to double down on a three-year bet that has failed to revive housing, a principal cause for the powerful recession still in progress but denied routinely. No longer can the swagger be seen in refusing to conduct a QE3 program with gusto. To be sure, the bond monetization purchase program has never ended, but its volume is much smaller than big heralded plans. With smeared scorecard and a string of lost games, the beseiged chairman is close to sucking it up and admitting the need for a big grand gigantic new QE program. The USFed displays the emotions of a loser. The USGovt still avoids vigorously any plan that reduces home loan balances for over ten million underwater home owners, a kick start toward a solution. In such a climate steeped with insolvency in every major sector, low mortgage rates under 4% mean little. Banks are broken, unwilling to lend, offering pale excuses to reject qualified home buyers. They cannot admit their insolvency, since their public forgeries on balance sheets are works of profound fraud.

Check some data. With mortgage rates under 4%, home loan borrowing in 2012 is forecast to decline to the lowest level in 15 years. Americans who might refinance and buy properties are being shut out by stricter lending standards, often obstructed by lower home valuations. Home foreclosures continue to apply the intense pressure, reducing values of entire neighborhoods and communities. The reluctance for banks to clear hidden inventory extends the time for the acute problem, not avoid it. In the Bernanke report to the USCongress, more vacant vapid vacuous ideas were put forth, like widening the role of Fannie Mae & Freddie Mac, the government supported mortgage guarantors, the largest centers of fraud and pilferage in US financial history. At the same time, the endless central bank purchases of mortgage bonds with yields at record lows is increasing the risk of eventual losses for the USFed. Any move toward normalcy, even a few baby steps, would force massive losses to their balance in the hundreds of $billions. See the Bloomberg article (CLICK HERE). To make matters worse, the USFed has angered many members of Congress by making specific recommendations that fall within the legislative purview. Cries of foul from interference have been made.

◄$$$ PIMCO HAS DOUBLED DOWN ON A SIGNIFICANT BET THAT THE USFED WILL MONETIZE MORTGAGE BACKED ASSET BONDS. THE TOTAL RETURN FUND HAS DRAWN CASH LEVELS TOWARD ZERO. WRONG ON USTBONDS LAST YEAR, NOT ANTICIPATING A CORRUPTED PUSH TO MAKE THEM THE PREFERRED SAFE HAVEN INVESTMENT, GROSS FORESEES A MAJOR NEW PROGRAM IN QUANTITATIVE EASING, AS KNOWN AS BOND MONETIZATION. $$$

Bill Gross has taken much criticism in the last year for his missed opportunity on the wonderful return on USTBonds. He expected a rise in bond yields. The brilliant bond king probably did not anticipate an $8 trillion application of Interest Rate Swaps, plain spit in the eye of debt rating agencies who downgraded the USGovt on its debt. Morgan Stanley did the IRSwaps, hurling the spit. He probably did not anticipate the measure of controlled demolition in financial markets in order to spur bond demand. CEO Gross timed the arrival of QE2 perfectly. He made outsized USTBond purchases in the summer of 2010 ahead of the August announcement of the second massive monetized bond purchases. His big bet on mortgage bonds in late 2010 did not pan out, as no transition from QE2 occurred. The USTreasury Bond Haven parade was orchestrated and conjured effectively. In fact, PIMCO was net short USTreasurys starting in March 2011, when the IRSwap lever was pulled hard, really hard, but secretly hard.

Back in December, the PIMCO Total Return Fund closed 2011 at $244 billion in the till, a modest $4 billion gain over the year. The fund held a $60 billion cash position. It was let loose to purchase a near record $103 billion in Mortgage Backed Securities. In December 2011 the fund doubled down on its QE3 bet, going ALL IN, as it borrowing a record $78 billion, using the credit to buy even more MBS, even more USTreasurys. The tally comes to 31% for mortgage bonds in the total fund, and a combined 79% of the Total Return Fund holdings, mostly in long duration exposure. Interpret the placements to mean Gross is convinced that the USFed will make a powerful QE bid in the coming months. If not open and announced, it will be hidden and still powerful. In the chart below, the mortgage commitment is in red, and just below the USTreasurys are rising in blue. The cash position in dotted green has fallen toward zero. See the Zero Hedge article (CLICK HERE).

◄$$$ JAPANESE BANKS ARE GOBBLING UP THE MOST CREDIT. THEY HOLD MORE GOVT BONDS THAN CORPORATE AND CONSUMER DEBT. THE PRIVATE SECTOR IS FUNDING THE STATE ON AN INCREASING BASIS. $$$

A few weeks ago, some senior officials at Bank of Tokyo Mitsubishi reported a fascinating financial data point. For the first time ever, the volume of Japanese Govt Bonds sitting on the bank sector balance sheet rose above corporate and consumer loans. A turning point has been reached. It is now the government, not the private sector, that secures most credit funds. The banks are gobbling up JGBonds, despite their rock bottom low rates offered. The key theme of 2012 is being carved out. During the past four decades, in the Western world the main role of banks and asset managers had been to provide funding to the private sector. The tables have turned. Nowadays, they act as a piggy bank for the state, supplying needed funds. The big banks are insolvent, leading to grand distrust among themselves. Their inter-bank processes are broken. The trend is true not just in Japan. See the Financial Times article (CLICK HERE).

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