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

BANKER EDITION
* Gold Update in Brief
* USFed Failure & Crime Nexus
* USTreasury Bond Breakdown
* Pressure to Break King Dollar
* Lost Confidence in Central Banks
* Broken Corrupted Foreign Banks
* Broken Corrupted American Banks


HAT TRICK LETTER
Issue #118
Jim Willie CB, 
“the Golden Jackass”
22 January 2014

EDITOR NOTE: The January Hat Trick Letter reports will be different. Due to the tremendous flow of geopolitical events, rapid development of alternative trade systems, creative global rejection of the toxic USD/USTBond tandem, the breakdown of sovereign nation financial structures, the smog of economic statistics, and general worldwide upheaval, a new format will be attempted and evaluated. It will provide more depth in reporting, more flexibility in the two major topics of monetary war and gold market, while offering the editor some flexibility. The January HTLetter documents will be presented as a Global Money War Report in two parts, the Global Edition focusing on geopolitical forces and rejection of the Petro-Dollar, the Banker Edition focusing on the US central bank, bonds, and currency. In February, a similar presentation will be done. The Gold & Currency Report will come in two parts, like one report focusing on trade zone development, energy pipelines, and mining sector, the second focusing on currency and gold markets. Consider the format an editorial experiment, which will provide solid analysis and broad information, but in alternating months, in essence four different reports every pair of months.

## GOLD UPDATE IN BRIEF

◄$$$ QUICK BRIEF SYNOPSIS OF GOLD EVENTS & DEVELOPMENTS. $$$

The Russian giant Gazprom has received approval from the EU Commission on the South Stream gas pipeline that will serve the European market. A hidden agenda of Trans Pacific Partnership is being revealed on corporate patents, as the Japan Govt offers surprise resistance. The Chinese colonization of the United States moves apace, with industrial parks, acquired idle manufacturing sites, and commercial property purchases. The German investigation by BAFIN in the gold market is declared worse than the LIBOR scandal (The Voice contributed to the investigation). The London gold vaults are being discovered as empty, with wider publicity finally. The big banks of Deutsche Bank and Citibank are the object of investigations for FOREX corruption in the currency market.

Curiously, JPMorguen might be working to supply China with the cheapest possible gold in huge volumes. The gold price will rise in a big way when China cannot acquire more gold, but any grand frustration might spawn open war. The gold rush has spread from China to India to Dubai to Saudi Arabia. Turkey continues to serve Iran in non-standard trade settlement, where possibly the transfers involve silver bullion also. Fierce new Shanghai gold demand is being witnessed at the gold exchange (confirmed), while crude oil pricing in Yuan currency slowly takes hold. The GLD gold inventory (SPDR Gold Trust) has fallen down to 2008 levels in a massive drain. The mining firms face credit rating scrutiny, as the latest official assault to hinder their business. The mining firms are being approached by China to buy gold mine ouput at a large premium. See the February Hat Trick Letter next month for the full set of Gold & Currency Reports.

## USFED FAILURE & CRIME NEXUS

◄$$$ THE USFED SUFFERS FROM A MASSIVE PORTFOLIO ASSET BUBBLE IN USTREASURYS AND MORTGAGE BONDS (TOXIC PAPER). IT HAS PRESIDED OVER ALMOST A FIVE-FOLD EXPANSION OF THE MONEY SUPPLY IN THE FIVE YEARS SINCE THE LEHMAN BROTHERS FAILURE (KILL JOB). THE USFED DRAINED LIQUIDITY ALL THROUGH 2008 LEADING UP TO THE LEHMAN COLLAPSE, WHICH APPEARS TO HAVE BEEN ORCHESTRATED. THE USFED IS A WRECKED ABSCESS LOADED WITH PAPER PUS IN UGLY DEMONSTRATION OF THE RUINED CENTRAL BANK FRANCHISE MODEL. $$$

The US Federal Reserve has become the USTreasury Bond market, and has become the principal patron of the USAgency Mortgage market. In fact, a credible argument can be made that the USFed is the majority element of the entire US banking system. Ideally, the bond market is intended for debt to be issued by parties independent of the debt issuers, then value to be determined by a fair market price mechanism for the risk of holding such debt, and not a social instrument for creating additional liquidity in financial markets which finds its way into the equities, commodities, and currency markets via carry trade liquidity that drives fund flows. A grotesque situation has presented itself. The resident predator overlord has been forced to purchase the unchecked issuance of USGovt debt in a broken system with no hope of finding balance, meaning no hope of returning the USTBonds into the marketplace. The USFed has lost its role as risk profiler, and has become a toxic paper vat. It has lost its role in guiding the issuance of responsible debt, and has gathered in toxic debt. The debt levels have not only reached unsustainable levels, but the USFed as central bank has become almost the exclusive buyer. The entire system has been distorted into a Frankenstein anomaly, the lightning bolts of birth being the QE trumpets.

Notice that the USFed drained the system all through 2008, leading to the Lehman Brothers failure and financial market breakdown. One might conclude that the USFed actually pulled the liquidity rug out from under the bond market, where the mortgages were the expected collateral damage. Think orchestrated crisis with political motive (fascist banker state). Since the crystallized bust event, the USFed has replaced the vanished foreign bond investors, and expanded its USTreasury Bond holdings by triple. The deep distortions will bear nasty and vicious long-term consequences. The central bank franchise system has failed. The predator has become the asset bubble purveyor and investor both, the garbage collector and center of syndicate power.

To commemorate the 100th anniversary, the US Federal Reserve is setting ablaze all previous records. Under its current QE program (surely not to be tapered except in the minds of the deceived and braindead), the USFed is printing $1 trillion a year. To put it another way, the Fed is printing roughly 100 years worth of money every twelve months. All these liquidity injections are hailed as beneficial, even as progress, for lifting bond asset prices. However, they perpetuate a broken system marred by imbalances, unsustained debt, with no hope of resolution. The housing market is said to be healing. The rising USFed mortgage bond holdings make the claim a bold lie. The housing market is stuck in the morgue, its central bank benefactor riddled with bubbles in its veins. No trickle down wealth effect can possibly succeed, except for paper pus, as the strategy is a corollary of obscenity to Weimar chapter and verse.

Controlled bond markets are failed markets. Furthermore, an ugly fact is that the USFed has been covering up the Fannie Mae fraud with USAgency Mortgage bond purchases in order to conceal and bury the fraud. The nationalization of Fannie Mae began when China dumped angrily their mortgage portfolio, a little told story, not to interrupt the fable recounted by the American story tellers along the Goebbels line. The USFed appears to have dumped USTBonds in its portfolio in order to buy the mortgage bonds that China dumped, then hastily arranged a USGovt nationalization of Fannie Mae. The housing market bubble broke five years ago. Its recovery foundation is to be located in the USFed portfolio asset bubble, a heresy. The bubble is still there, only moved in location during an obscene exercise of Elite Collectivism that would make Karl Marx proud.

The overstepping by the USFed to actually buying up financial assets has severely distorted the market balance process, while expanding the monetary base to the extreme. To claim no inflation exists is a lie of extraordinary proportions when the money supply has grown 4.5 fold in the last five years. The monetary inflation has been limited to the financial sector, to be identified in banker welfare aid, in the USGovt dole to cover its deficits and war costs, and hidden derivative support gone down a black hole. A leak to Main Street would cause 20% to 30% price inflation. The unstated objective has been to prevent the monetary inflation from reaching the tangible economy, an obscene directive on its face. While the financial market investor morons, zombies, and juice devotees have cheered the USFed bond monetization initiatives, they overlook the ruin of financial markets themselves. As price discovery has become a joke of the past, the Weimar monetary machinery has been running overtime, with few inside the US Dome of Perception noticing the heresy. All hail the New Normal. The incoming USFed Chair Yellen will continue the heretical monetary policy, a pre-requisite for being invited into the Weimar Hall of Shame. The Bernanke Fed legacy will be one of broken markets, asset bubble in USTreasury Bonds, abscesses, acne, infection, and paper pus. The great revisionist history professor from Princeton University has disproved his own doctoral thesis, since amplified liquidity has not overcome massive systemwide insolvency after all.

EconMatters concluded, "Either markets are forever annual social welfare policy programs or legislation is required to restrict future USFed intervention in financial markets with intermittent asset purchases. There are many other measures the Fed could entertain instead of the path that Bernanke chose in destroying forever the concept of what constitutes a market mechanism. Consequently unless the Fed has forever changed what markets actually are, social good mechanisms for government wealth creation, and that means a socialized commitment for eternity, i.e. the market must appreciate 10% every year regardless of broader economics or fundamentals. Then they have caused more damage by creating a short-term bubble that is unsustainable on its own, and have set the stage for future ad-hoc interventionist asset purchases in markets on equally subjectivist timeframes and justification! This is the real area where the USFed is guilty of overstepping its bounds. They have forever destroyed financial markets with interventionist policies, and future legislation will have to be created to limit the Fed`s power in this area, and restore financial markets back to their intended purpose. To be sure, financial markets are built and intended to fail at times. Once they are no longer allowed to fail, they become state tools for policy outcomes. This reality is a bigger failure in a democratic state, than any short-term and well-meaning goals that result from such policies." See the EconMatters article on Market Oracle (CLICK HERE). A tremendous reaction by natural forces is due, in order to restore balance.

◄$$$ A HUNDRED YEARS OF MANIPULATING THE USDOLLAR BY THE FEDERAL RESERVE, UNDER A HUNDRED YEARS OF MONETARY MONOPOLY. THE HIGH CRIMES ARE DISPENSED WEALTH TO THE ELITE, AND MANAGED INFLATION TO WHITTLE AWAY THE WEALTH OF THE PEOPLE. THE TRANSITION FOR CONTRACT RENEWAL IS FUZZY AT BEST AND ASSUMED AT WORST. BY ASSUMED IS MEANT EITHER DONE UNDER A WINK & NOD AMONG THE BANKSTER CRIME SYNDICATE OR POSSIBLY DONE IN A CHINESE TRANSFER. THE CHINA BUYING SPREE SPANS MANHATTAN. THE ORIGINS OF THE USFED SHED CONSIDERABLE LIGHT ON ITS TRUE FUNCTION AS GLOBAL BANKER PREDATOR, DEBT SLAVER, AND WAR LORD. $$$

Monday December 23rd marked the 100th Anniversary of the creation of the Federal Reserve System, otherwise known as the central bank of the United States of America. In reality it is the central bank for the USDollar management, loaded to the brim with corruption, insider trading, narotics money laundering, bond & stock market interventions, and site of $trillion hidden gifts in the form of near zero percent loans to elite figures. It is more a crime boss command center than a central bank in function. The mainstream media have kept quiet about the century milestone and the contract renewal. The Jackass does not have any definitive word on the fate of the contract. Memories are fresh of a long conversation in summer 2008 with The Voice, as the relationship was in its formative stages, trust was growing, information was flowing, stories were being told, and the harsh light of exposure was dawning on the young analyst protegee. The mentor shocked me by predicting a possible highly disruptive sequence of events when 2013 ended, and the USFed contract with the USCongress would come to an end. He wondered aloud (not a forecast) that the USFed owners might in four years preside over a disaster and a wrecked bloated balance sheet. He considered the possibility that the shadowy trillionaire owners might not wish to renew their central bank contract for many reasons. They might be disgusted with the failed gigantic balance sheet, or the end of the King Dollar's reign, or the sunset of the Petro-Dollar amidst planned Middle East turmoil, or even the growing spotlight on the criminal bankers and vast array of big banks that operate much like a crime syndicate. The Voice was speculating on the end of the USFed as we know it, and some unusual unorthodox paradigm shift soon to occur.

Fast forward to today. The Chinese have bought up 60% of Manhattan commercial property. Among their acquisitions are numerous metals warehouses and the prestigious JPMorgan headquarters. The warehouse purchases constitute a hidden margin call and compulsory inspection of the gold inventory. The purchase of One Chase Plaza, shown above with fresh red paint (done at night by Chinese prison chain gangs on leave) indicates a much more important event. When considering the meager $725 million price paid on the JPM-HQ, one is pushed to conclude that JPMorgan defaulted on some contract to the Chinese, who proceeded to seize the collateral placed on the contract loan. The Jackass suspects (with 80% likelihood) that the Chinese secured the giant gold lease in 1999, at the same time as the Most Favored Nation trade status was granted, with a derivative contract secured by an official income stream. Continue with the speculation, as events unfold. The Chinese might be converting the JPM-HQ into an IMF-affiliated office for management of the foreign-held USDollar. They now run the Intl Monetary Fund and possess the JPM gold vault. The Chinese could be taking control of the US Federal Reserve as the USDollar helm, while the USDept Treasury prepares to launch a new Republic (Shit) Dollar to be devaluated. Expect the American public to be last to know, and Hat Trick Letter followers to be among the first to know.

The 1999 gold lease was completed by Wall Street banks in order to continue the great gold market price suppression, that is certain. But the collateral to secure the gold lease is not clear. Only a default is quite clear, since the South Manhattan HQ property, which includes the skyscraper, the largest private gold vault in the world, and a conference center, are obviously worth at least $2 billion (by standard formulas). Then move forward to wonder what the Wall Street monster predators pledged to secure the gold under lease. The biggest and most reliable income stream to secure in a contract would be the income tax receipts from payroll withholdings. The Jackass conclusion is that the USGovt through its Wall Street bank syndicate don manager handlers securitized the IRS income in a massive derivative contract, brokered by JPMorgan Chase, whereby the collateral was the JPM-HQ and perhaps other properties like warehouses and offices in foreign lands. Couple the above line of thought with the very cloudy news that the Vatican once had claims to the IRS income in a significant national loan to pull the United States out of the Great Depression. Leave that topic alone, since no data is on the table, and the Satanists who run the Holy See are best left alone, where they can run the on-site global communications center for covens, and they can enjoy their sacrificial rituals of young children in darkness.

Back to the USFed and its roots, born in secrecy, developed in swamps. The central bank has enjoyed a monopoly, run by a private clique of usurers, called banksters since a veritable crime syndicate, fully immune from prosecution, fully protected by the USGovt lawmen. The birth of the US Federal Reserve took place the night before Christmas in 1913, when only two handfuls of men were in attendance at the USCongress. In fact, the passage of the Federal Reserve Act resulted in some controversy, the compromise for which was a Quorum Rule, where no bill could be voted upon with a certain minimum members in attendance. Woodrow Wilson was President of the United States, and World War One was to be triggered eight months hence. It is noted that three years earlier a very secretive meeting had taken place at the private estate of the kingpin banker John Pierpont Morgan. The infamous meeting conducted on Jekyll Island off the coast of Georgia made history, laying the plans for the US Federal Reserve. The meeting served as the basis of a famous book about its creatures, best described as serpents, vampires, war lords, marauders, and parasites among the elite masters. They would plan the central bank franchise system, from which the world would serve as vassals before their privileged feet. Bloomberg News described the Jekyll Island Elite Meeting in a February 15th of 2012 as "a secret meeting that launched the Federal Reserve Bank. In November 1910, a group of government and business leaders fashioned a powerful new financial system that has survived a century, two world wars, a Great Depression, and many recessions."  The Bloomberg version is sketchy and minimal, leaving out scores of magnificent criminal deeds.

The more realistic ugly truth stands in sharp contrast by description. Adrain Salbuchi prefers to describe the crucible event differently. He wrote, "In November 1910 a group of government, banking, and business leaders fashioned a powerful new financial system that triggered, promoted, and imposed a century of conflict and genocide, including two world wars, a Great Depression, many recessions, and systematic mega-banker bailouts using taxpayer's money." In 1995, G Edward Griffin, the American intrepid and now famous investigator, published the most authoritative book on the USFed, entitled "The Creature from Jekyll Island" which explores the top secret conspiracy. The Bloomberg article went on to describe how Rhode Island Senator, Nelson Aldrich, whose daughter married John D. Rockefeller Jr, invited men he knew and trusted, or at least men of influence who he felt could work together: Abram Piatt Andrew (assistant secretary of the Treasury), Henry Davison (business partner at JPMorgan), Charles Norton (president of the First National Bank of New York), Benjamin Strong (another Morgan friend, head of the Bankers Trust), Frank Vanderlip (president of the National City Bank), and Paul Warburg (partner in Kuhn, Loeb & Co, a German citizen). Paul Warburg was the actual mastermind behind the FED, as it is most commonly called. Citbank emerged from National City Bank, and Bankers Trust became the USFed's private office to manage derivatives. Quite the club.

The seamy scummy elite diabolical crew have traceable tentacles. Warburg's partner at Kuhn Loeb was Jakob Shiff, who had just financed the Japanese war against the Russian Czar. Shiff would later channel US$20 million via a Russian exile living in Brooklyn by the name of Lev Davidovich Bronstein (aka Leon Trotsky) to ensure the 1917 victory of the Bolshevik Revolution. So the Warburgs behind the USFed financed the Soviet Union birth, in parallel with the Wall Street bank loans in the 1930 decade to finance the Nazi Wehrmacht war machine. The easy conclusion is that the USFed is a hive of nazis operating behind the curtain, having taken control of the United States. They had a coming out party on 911. They had a Fascist Manifesto in the Patriot Act, an amalgam of rejected legislation from the 1980 and 1990 decades. It passed easily under shock and pressure by the thugs in control of the USGovt security agencies and their new terrorist arm, the Federal Bureau of Investigation. The FBI has changed its stated motto in purpose, from law enforcement to national security protection. Witness the expanding Gestapo in the NSA, CIA, FBI, DEA, ATF, and Coast Guard.

The joke is on the American people and the citizens of the West. The US Federal Reserve is neither federal (not a USGovt agency), nor a reserve (not holder of USGovt surplus reserve accounts), and surely not a bank (more like crime syndicate HQ). It is an official system that manages the many central bank franchises in the West, like a capo di tutti capi in the mafia parlance (don of dons), a head of the crime bosses, literally the head of all heads. Salbuchi concluded, "Officially, the Federal Reserve System wields full control over the USDollar, not to serve the American people, but on the contrary the interests of private bankers, who hold its very special type of stocks and shares. In practice, the FED is over 95% privately owned, is not integrated into the US Government, nor accountable to any branch of government." Thus the USFed is immune from prosecution, since it is owned by what the Jackass has referred to as the global castle dwellers who know no nationality. They control governments. Recall that the Financial Regulatory Bill (aka Dodd-Frank Bill) included a bone for Ron Paul in appeasement. He demanded a full independent audit of the USFed. When the audit took place, they discovered two large packages of low interest loans in 2009 and 2010, to numerous elite global banks, for $18 trillion and later for $8 trillion. The banksters have no compunction to throw it in our faces. The minions working as government leaders cannot rescind the loans. In the Jackass view, the banksters were not to ward off insolvency as much as to prepare for a shopping spree to control global assets. They filled their wallets with a whopping $26 trillion to use, in free money.

The primal central bank arbitrarily prints the money the mega-bankers and power elites require to keep the global system under their thumbs rolling in the direction that they desire and need. This includes the multi-$trillion bond monetizations necessary to keep the giant banks in operation, and to avoid their failure. The dirty little secret from September 2008 was that the main kill from the exploding financial crisis on Wall Street was going to be Goldman Sachs, in line for a sudden failure, which would have been a spectacular failure indeed. Notice that GSax won 100% redemption on credit default swaps after the AIG insurer of derivatives was assumed by the USGovt, along with the fraud-ridden Fannie Mae. Goldman Sachs refused to acquire Lehman Brothers, causing the trigger to be pulled on the crisis inception. The CFO Kellerman of Freddie Mac soon afterwards committed suicide over what he knew, also known as murder with a typed suicide note. The USFed also engages regularly in wars and overthrows of foreign governments in order to maintain enemy alignments and constant war footing. The result is a brisk war machine business. The same elite fingerprints can be found on stock holder lists as shareholders for most of the major defense weapon contractors.

Finally, the USFed is definitely not a bank in any extended sense. It does not fulfill credit needs of the USEconomy, but rather drains credit when desired. It does not serve as the grounds for business formation, but rather feeds the Wall Street machinery as required. It does not dispense cash on a merit basis, but rather on a rescue basis for important cog firms. It does not even have to endure scrutiny for its balance sheet, loaded with toxic paper, the result of activity known as buyer of last resort. The more accurate description of this private financial firm is that it supports the financial needs of the global war system, covert operations, debt usury, drug dealers, and the global banksters. The USFed answers to nobody, but perhaps to its European hidden partner in the Bank For Intl Settlements. Its purpose is to serve the global power elites, using regularly venues to plan world government through entities like the Council of Foreign Relations, Trilateral Commission, Bilderberg, World Economic Forum (Davos Switzerland, Jackson Hole Wyoming USA), and other more clandestine venues forming an intricate planetary web of global money power. See the Adrian Salbuchi article on RT Op-Edge (CLICK HERE).

The Jackass will not comment on religious or ethnic makeup of the bankers. The strain seems clear and obvious even to the moronic minds and dim bulbs. The Voice shared something a few years ago, that the banksters are in the midst of a severe internal battle, a schism of sorts. The main groups are the neuveau riche (like Bill Gates), the narco barons (like the Bushes), the fascists, the sons of Abraham, and the Satanists. The last two are in an extremely bitter rivalry.

## USTREASURY BOND BREAKDOWN

◄$$$ TNX AT THE 3.0% DOORSTEP, AS 3.5% LOOMS WITH A 3.7% TARGET PRESENTED. A RISING TREND IS SEEN IN THE MOVING AVERAGE. THE JACKASS FORECAST OF 3.5% REMAINS IN PLACE, PATIENT TO WATCH UNFOLD. A VERY RELIABLE REVERSAL PATTERN IS EVIDENT, THE CUP & HANDLE FORMATION, WHICH INDICATES A BREAKOUT LIFT 1.0% HIGHER. A USDOLLAR CURRENCY CRISIS ERUPTION COULD SEND THE 10-YEAR USTBOND YIELD TOWARD THE 4.0% LEVEL IN A SUDDEN BURST. THE TIMEFRAME IS LATE 2014. BUT THE DERIVATIVE BRAKE PEDAL MUST BE ANTICIPATED FOR HEAVY PRESSURE IN RESTRAINT.

WITNESS A CLASSIC RECESSION FACTOR (TO DAMPEN RATE RISE) BUT A CURRENCY CRISIS (TO FUEL RATE RISE) WITH AN INTEREST RATE SWAP DERIVATIVE (AS CONTROL MECHANISM). THE DERIVATIVES MIGHT BE BROKEN, OVERTAKEN BY THE INDIRECT EXCHANGE DUMPING TREND. MY FORECAST IS AN UPSIDE BREAKOUT IN 2014, LIKE BEFORE THE SPRINGTIME DAFFODILS ARRIVE. $$$

Put aside the control mechanisms to intervene in the powerful interest rate derivative. The TNX (10-yr USTrez yield) looks to be heading to 3.5% in a very clear chart, as human devices cannot stop natural forces. The Cup & Handle reversal pattern is among the three or four most reliable patterns in Technical Analysis. Another knock of the door at 3.0% was resisted in late December. The third time could be a charm. Since the London Whale sighting in June 2012, the Jackass has become highly suspicious of the interest rate derivative mechanism. My deep suspicion is that it has been somewhat broken, and lost some (not all) of its power. The secure income stream of the IRS tax funds might be diverted from usage on this derivative in key ways, making the device much weaker. The Chinese might have seized control of the income stream in a different derivative default, resulting in the loss of the JPMorguen HQ property complex. The effect of the sequence of events is unclear on the derivative potency as a brake mechanism on rising rates. The daily chart (not shown) has more support at the 50-day moving average (MA). The weekly chart shown above has support at the 20-week MA just below here, as the rising TNX will come up to meet it. My forecast is for a jump in the TNX over the critical 3.0% level within a couple months, with a 3.5% target. Timing is difficult on reaching the target.

Market dynamics are out the window on a slowing USEconomy working to dampen rates. The investment community might move funds from stocks to money market instruments, and not into USTreasurys, as distrust of the USFed grows. Look for higher rates even though economic growth data is lousy. Crisis times have returned, just like in summer 2008. A currency crisis is in powerful early stages. The derivatives appear broken at a time when foreigners are seriously dumping USTreasury Bonds and the King Dollar is being dethroned on the global stage. The Petro-Dollar is being dismantled, and an alternative system is being constructed. A quick update on derivative volume data from the Office of Comptroller to the Currency. The latest report indicates a moderate $10.4 trillion in OTC swaps added from 2Q2013 to 3Q2013, for which interest rate derivatives dominate. The new OTC Swaps in were somewhat evenly spread among the five largest players: JPMorgan, Citibank, Bank of America, Goldman Sachs, and Morgan Stanley. Back in the second half of 2010, the main bank to carry the OTC Swap water pails was Morgan Stanley. Notice the Q2 placement of IRSwap contracts slowed the rise in the USTreasury Bond yields. Expect the Q3 and Q4 data to show more of the same artificial demand interventions. Rob Kirby added a comment, saying "It is truly sad that virtually nobody in the world will acknowledge how indicting this data really is. The progression over the years of the derivative data alone should have been a wooden stake through the heart of the corrupted system. It is a damned shame and extremely sad commentary on tainted economists and biased analysts the world over."

The overriding global message is that Russia & China are leading a movement across the entire East to dump the USTBond, to work toward alternative trade settlement, and to replace the USDollar in its key role as trade settlement medium and global reserve currency. A Global Paradigm Shift is in progress. Downward pressure in the TNX will be seen in the poor economic results and application of the interest rate derivative machinery. Upward pressure in the TNX will be seen from the global USD/USTBond rejection and recognition of the USFed Taper Talk falsehood deception (head fake). The USFed is on course to lose all remaining credibility. Their prestige vanished with the introduction of the Quantitative Easing against the ZIRP zero bound rates. Five key important points dominate the global landscape like a gigantic billboard.

1)      QE to Infinity is being recognized, the Taper Talk widely seen as a ruse and propaganda to defend the broken USDollar, another turn in the road.

2)      The Geneva Iran Talks can be better described as the Petro-Dollar Surrender Talks, another turn in the road.

3)      The Boyz might misjudge that the derivatives can prevent a powerful breakout above the critical 3.0% and toward the 3.7% target, as the London Whale incident was a turn in the road.

4)      The Indirect Exchange seen in broad USTBond dumping is a new dangerous disruptive trend, yet another turn in the road.

5)      The pension and bond funds as well as insurance sector demand higher bond yields for carry income, a breakdown coming.

◄$$$ BELGIUM INCREASED ITS USTREASURY HOLDINGS BY $72 BILLION IN A SINGLE YEAR. THE NEAR 50% INCREASE IS MORE THAN THE JAPANESE RISE. WITNESS THE NEW Q.E. BACK DOOR WINDOW FOR HIDDEN BOND MONETIZATION. THE SLUSH FUND IS OPERATED BY THE EURO CENTRAL BANK, WHICH HAS OFFICES IN BRUSSELS. THE Q.E. VOLUME IS FAR MORE THAN REPORTED, WITH NUMEROUS ALTERNATIVE DOORWAYS SEEN. $$$

The recent Treasury Investment Capital Report (TIC data) revealed a couple of surprises. The Chinese might have declared a buyer's strike on US$-based bond purchases, but they had a net gain of $134 billion in the USTreasury Bonds for the twelve month period. Step back to see the trend though. The Chinese command a record total of $3.8 trillion in reserves. Their total reserves have grown by $500 billion in 2013, with a minimal addition to the US debt paper. They have begun to taper. Contrast to the gigantic growth in USTBond securities flooding the bond market, and conclude that China really is not participating much at all. The USFed is buying the great majority of the toxic USTBonds. They are insecurities, not securities. The other wrinkles are seen in nations supporting the USGovt debt securities. They are Japan with a net rise of $68 billion, the Caribbean slush zone (hidden Wall Street and UKGovt hedge funds) with a net rise of $25 billion, and little Belgium with a surprise net rise of $62 billion.

Big questions must be asked. The Belgium account rose by 44.6%, almost half. It is an absolute mess fiscally as a nation. Just a couple years ago, it had no budget from the wrangling over fiscal ruin. So this kaput entity known as Belgium, home of the main offices where the European Union and its Parliament hear each other make speeches to nobody, bought a net $62 billion in USTBonds. Their increase is on par with the powerhouse Japan, and 2-1/2 times the Caribbean center, which has long served as the Bank of England's slush fund locale, and JPMorgan's too (see Enron). The answer to the mystery is easy. Brussels banks are serving as the backdoor window from the Euro Central Bank under Mario Draghi's trusty helm operation, for the purpose to buy USTBonds on the sly. The New York banksters have discovered a secondary slush fund locale in Brussels. The sleepy dopey braindead US financial community seems neither to notice nor to care. See the Zero Hedge article (CLICK HERE).

◄$$$ THE BRICS NATIONS HOLD A HUGE BLOCK OF USTREASURY BONDS COLLECTIVELY, LED CLEARLY BY CHINA. THE PILE OF TOXIC PAPER CAN BE USED TO GAIN ADVANTAGE, EARN SWAY IN POLICY, AND COERCE DECISIONS. THE PILE CAN CONDUCT AN OPEN DOOR AMERICA POLICY IN REVERSE, FROM WHICH TO BUILD INDUSTRIAL PARKS, AND TO FUNNEL IN LARGE TRANCHES OF MONEY. THE CREDITOR CALLS THE SHOTS, BUT MUST ENDURE ABUSE AND HIDDEN TERRORIST DEVICES. $$$

According to latest data from the USDept Treasury, the BRICS remain among the biggest holders of USGovt securities. Data is from end November 2013. China remains the largest creditor, whose registered exposure was worth $1.32 trillion, only a trifle $23 billion higher than the $1.30 trillion recorded in October. In the last 12 months their holdings grew by $33.6B, the pace greatly slowed. The same TIC report showed USTBond holdings by Brazil rose a tiny amount to $246.9 billion from the previous month. In the last 12 months their holdings were drawn down by $9.0B, gone in reverse. Russia managed to reduce its exposure by $10 billion to a level at $139.9B sequentially. In the last 12 months their holdings were drawn down by $26.3B, gone in reverse. Fighting a falling Rupee currency, India increased its holdings for the second straight month of USGovt securities to $63.9B, and lifted them by $5.1B in the last 12 months. Among the original BRIC nations, India has the smallest USTBond holdings. The exposure by South Africa is $11.7B, up by $1.1B in October but down from $13.0B in the last 12 months. All combined the BRICS owned $1779.1 billion at end November 2013, up only 6.09% from the $$1.677.0 billion at end November 2012. They are tapering their purchases in reality, while the USFed is ramping up in reality. See the BRICS Post article (CLICK HERE). For the latest TIC Report table of data, see the USTreasury website (CLICK HERE).

◄$$$ THE NEW BILL GROSS TRADE IS BASED UPON A STEEPENING OF THE USTREASURY YIELD CURVE. CONSIDER SOME PAST ERRORS BY GROSS. BACK IN 2010, HE OVERLOOKED THE POTENTIAL FOR ARTIFICIAL DEMAND BY JPMORGAN VIA INTEREST RATE SWAPS. BACK IN 2011, HE OVERLOOKED THE POTENTIAL FOR BOND MONETIZATION BY THE USFED. THE RECENT STRATEGY BY GROSS AT PIMCO OVERLOOKS THE GLOBAL USTBOND REJECTION AND DIVESTITURE. GROSS APPEARS RIGHT THIS TIME, BUT FOR WRONG REASONS. THE JACKASS FORECASTS HIGHER LONG BOND YIELDS AS THE USFED LOSES CONTROL OF THE USTBOND MARKET AMIDST FOREIGN DUMPING. GROSS EXPECTS USFED TAPERING (DUMB). $$$

Bill Gross is the decorated and celebrated manager of the world's biggest bond fund at PIMCO. His latest monthly investment outlook centers on a clear strategy: do not fight the USFed. His bet is that the central bank will keep its commitment to the (destructive) zero interest rate policy for the next two years, even as it winds down its bond purchase (QE) program. His investment strategy is to move funds out of the long end of the USTreasury curve and into the short end with USTBills. Gross expects the curve to steepen, which means interest rates in the long end to rise faster than those in the short end, during the USFed Taper exercise. He errantly believes the USFed will taper, when the Jackass forecast is for the QE volume to double. However, we agree that the long-term USTBond yields will rise, the Jackass reasoning the bond yield rise to come from massive dumping of USGovt debt by global players. Perhaps Gross pretends to expect USFed bond buying to taper, and is lying, but knows very well how foreign central banks are divesting USTBonds from their reserves. If so, then Gross is cagey but politically correct.

The USFed is stuck with grandiose amplified bond monetization, since almost no foreign investors want the USTBonds, something Gross might be factoring in. It is difficult to know. The USFed is also stuck with artificially low interest rates, committed at current levels between 0% and 0.25% for the next two years. The Jackass forecast is for the long end of USTBonds seen in the TNX (10-year bond yield) to rise past 3.0% in a surprise sometime in the first half of 2014, maybe very soon in a sudden shock. The PIMCO strategy should win. Gross appears to be on the wrong side of the USFed again, but positioned to win anyway. Kind of funny really. The USFed will fight the rise with a massive application of bond purchase via hidden channels like in the Caribbean and Brussels, as well as a massive application of Interest Rate Swap derivatives that deploy heavy nifty leverage. One is left to wonder if the IRSwap derivative machinery is broken though. Time will tell in TNX movement and future London Whale sightings with attendant massive losses.

As footnote, yesterday Mohamed El-Erian resigned his post as co-CEO at PIMCO. On his watch, PIMCO client funds lost $41 billion, but he personally earned $200 million each year in 2013 and 2012. El-Elrian is a slick likeable guy, a great speaker, a wise fellow. He had a big former responsibility for the Harvard Endowment Fund. The Jackass has always wondered if he was an Enron architect in a gigantic fraud, since the company was hatched at Harvard Univ, with Citigroup funding, and JPMorgan offshore accounts.

◄$$$ OUTFLOWS INTENSIFY AT BOND MUTUAL FUNDS. AN EXODUS IS UNDERWAY, AS RISK IS NOT PROPERLY REWARDED. $$$

US-based bond mutual funds and exchange traded funds posted an outflow of $34 billion for December. It was the fourth highest withdrawal on record, in reaction to slowly rising interest rates and principal price declines in fixed income assets, according to TrimTabs Investment Research. The average bond fund saw a price decline of 1.4% for the last month of 2013. The full year performance for bond funds in year 2013 is a 5.7% decline for investors. Bond mutual funds redeemed $33.1 billion, while bond ETFunds redeemed $900 million. Bond funds posted a seventh consecutive month of outflows, which likely comes as a shock to asset managers. In contrast, stock funds fared much better. TrimTabs reported for the full year in 2013, investors poured $352 billion into all stock mutual funds and stock ETFunds. The volume easily surpassed the previous record $324 billion of inflows in year 2000. See the Money News article (CLICK HERE). One would have to be a true moron to regularly invest in bond funds for the last two to three years, since the yield in return has been paltry. The risk of rising rates posed a huge risk, seen now. Most investors are sheep, chasing yesterday's gains and the current momentum.

◄$$$ JOHN WILLIAMS HAS FORECASTED STRONG PRICE INFLATION IN YEAR 2014, POWERED BY A GLOBAL REJECTION OF THE USDOLLAR. THIS TIME HE MIGHT BE CORRECT, SINCE THE FORECAST CALL IS NOT BASED ON GROWING MONEY SUPPLY, ERRANTLY AS BEFORE. THE WORLD WILL GRADUALLY REJECT THE USDOLLAR, AND REFUSE ITS VEHICLE THE USTREASURY BOND. $$$

John Williams of Shadow Govt Statistics has a grim view of year 2014. He forecasts a currency panic to hit. He paints a detailed picture, but the main item in his forecast is the spike in price inflation. The spike expected will be the result of a global panic out of the USDollar. He foresees a massive USTreasury Bond selloff, a currency based rise in prices within the USEconomy, and game over as disorder strikes. See the interview with Williams on USA Watchdog with host Greg Hunter (CLICK HERE).

John Williams is a great statistical series calculator, his main strength. He and the Jackass had differed on forecast calls for at least three years running. Since 2010 or 2011, Williams had forecasted very strong price inflation in the USEconomy. He was wrong every year, since he focused incorrectly on the money supply argument. The Jackass forewarned HTLetter readers of his wrong string of forecasts. He had been calling for severe price inflation in the teens or higher. My view was as clear as it was simple. The new monetary flow was being devoted almost entirely for the banking sector, not reaching the Main Street businesses. Furthermore, the Jackass gave a preview warning, that only when the USDollar faced global rejection, only when the USTBond faced losing its banking reserve status, only then would price inflation strike the USEconomy with a vengeance. The elite plan was to specifically prevent the monetary inflation (rising money supply funds) from reaching the tangible economy. Worse, the plan was to produce a tolerable recession in order to keep a firm lid on final demand (as they called it), so that prices would remain under control. Think of a wet blanket. Williams went outside his area of expertise. He expected for several years consecutively that the rapid rise in USD money supply would spill over and result in strong price inflation. It was a string of wrong forecast calls. But now, he is properly aligned to expect fast rising prices from a USD-based currency crisis.

Now in 2014, he repeats the strong price inflation call, but this time adding that the USDollar global exodus will be the culprit. The Jackass and Williams are in synch at last. The currency devaluation is the key, not money supply. Expect the price inflation to raise its ugly head in an emphatic manner, as the USD/USTBond toxic tandem are rejected, replaced, and avoided, occurring in the East with new trade settlement devices being implemented. To be sure, Williams is the world's best at producing honest statistics. It is important to remember that John Williams is the foremost economic series expert and should be given great praise for accurately tracking the correct M3 money supply, the correct Gross Domestic Product (economic growth), the correct price inflation, and the correct unemployment rate. Williams is one of the good guys, but he did not properly follow the Jackass price inflation forecast or rationale that differed from his own errant forecasts.

## PRESSURE TO BREAK KING DOLLAR

◄$$$ AS THE WORLD MOVES AWAY FROM THE USDOLLAR, IT WILL AVOID THE USTBOND IN BANKING RESERVE FUNCTION. THE WORLD WILL SETTLE TRADE OUTSIDE THE USDOLLAR ON A RAPIDLY GROWING BASIS. THE RESULT WILL BE A SHOCK TO THE USECONOMY WITH FAST RISING PRICES. ALTERNATIVE SYSTEMS WILL MOVE TOWARD OTHER CURRENCIES IN TRADE SETTLEMENT, LIKE THE CHINESE YUAN AND GOLD BULLION. THE USFED WILL COMPENSATE BY PRINTING MONEY TO COVER THE USTBOND SELLOFF, DUMPING, DIVESTITURE, AND INDIRECT EXCHANGE. ONLY WHEN THE FOREIGN SUPPLIERS DO NOT WANT USDOLLARS WILL THE PROBLEM HIT THE UNITED STATES LIKE A FINANCIAL HURRICANE.

THE USFED RESPONSE WILL TRIGGER TWO EVENTS: A SEPARATE DOLLAR FROM A SPLIT, AND THE RAVAGE OF PRICE INFLATION. POWERFUL DYNAMICS INSIDE THE UNITED STATES AND OUTSIDE THE UNITED STATES WILL RESULT IN SPLIT BIRTH OF A NEW SHIT DOLLAR FOR DOMESTIC USAGE, BUT ALSO A FLOOD OF FOREIGN USDOLLARS CONVERTED TO GOLD. THE SHIT DOLLAR WILL SUFFER A SEQUENCE OF DEVALUATIONS. THE CONVERSION OF USTBONDS AND OTHER SOVEREIGN BONDS TO GOLD WILL GAIN MOMENTUM TO CHANGE THE FACE OF THE WORLD. THE GOLD STANDARD LIES DIRECTLY AHEAD. $$$

Summarize as preface. The pressures internal and external to the United States will force drastic unprecedented action, seen in downward USDollar pressure the urgently demands disruptive decisions. The USGovt must defend against a growing tide of USTreasury Bond dumps (for whatever reason). The USFed cannot solve the imbalance and fill the gaps, by means of endless monetary hyper inflation. Its blunt weapon actually is wrecking the global economy, by raising the cost structure (finally a recognized cancer). The USGovt must make a new Domestic Dollar, and devalue it in order to assure supply to the import dependent USEconomy. History is about to be made in a grand but grotesque series of important structural steps. The miscalculation will be enormous, as the United States slides into the De-Industrialized Third World, and struggles to regain its industrial core with the Chinese taking a major role. The US maestros will not anticipate how deeply they will have to devalue the New Shit Dollar. The Jackass estimates by 70% to 80% in at least two steps. See Venezuela for an example that made up for two decades of abuse, with their dirt cheap Bolivar currency. Also, the US maestros have misjudged the oil supply from Bakken, misjudged the natural gas supply from Shale projects, while relying unduly on sequestered oil supply from Alaska. The Northern Ridge will require at least $150 oil in order to be brought to market.

Some errantly believe that the USFed can react easily to the global USDollar rejection and the global USTBond divestiture. The central bank can cover the sold and dumped USTreasury Bonds with newly printed money, so they believe, to avert any huge risk. This is the heretic errant mindless childlike Bernanke claim of zero cost money. This view is naive and simplistic, along with being short sighted and shallow. Monetary inflation is a cancer, no other way to describe it. The three years of QE bond monetization have created the high pressure factor in the massive vortex. As the global trade is settled more outside the USDollar, far fewer USTreasury Bonds will be accumulated. In fact, far more USTBond will be sold off during a grand divestiture, often called diversification. As the USDollar goes out of favor in trade, the United States will have a tremendous new challenge.

Being a massive importer, the USEconomy must find a means of paying for the huge volume of incoming supply. This is precisely how the USDollar will undergo its crisis. Events will go out of control. The USGovt must find a way to devalue its USDollar currency, and stop printing new USDollars. During the next chapter, foreigners will begin refusing USD in trade while selling its USTBond vehicle from their banking systems. The sales dump will form the low pressure factor of the massive vortex. The hurricane is gathering force from the high pressure and low pressure simultaneously, in ways the Deflation Knuckleheads miss. They do not comprehend the high pressure factors at all.

The USFed response will be to print money to cover the sales of USTBonds, but done in the face of the American currency rejection outside the US walls. The debasement of the USD from rampant money supply growth will exacerbate the situation. Foreign USTBond holders will rush to sell more, thus fueling the downward spiral. The USFed will print even more money to compensate in the bond monetization, probably done in hidden fashion to hide the monstrous QE volume increase. Then comes the full blown currency crisis, which in my view will result in a split. The USGovt with its USFed masters will decide to split the currency. They will tell the foreigners that the external USDollars retain value, but a new Republic Dollar (aka Shit Dollar) will be distributed in order to pay for imports from foreign suppliers. It will be devaluated, in order to encourage its acceptance and to assure incoming supply. The foreign USTBond selling will slow down, and even halt, only when the USFed promises to redeem with original USTBonds in cash. The foreigners will use the cash to buy other major currencies and Gold Bullion, and certainly not swap into the new Republic Shit Dollar. As the perception spreads like a virus that the major currencies all suffer from the central bank debasement problem, the conversion of Euros, British Pounds, Swiss Francs, and Japanese Yen will all be directed toward Gold Bullion. Their sovereign bonds will undergo separate simultaneous crises, all perceived as toxic paper. The recognition of Gold Trade Settlement will be born in a simultaneous stroke. The momentum into Gold Bullion will be staggering, secret, and robust.

On the domestic front, the new split Shit Dollar will face a huge problem of its own. The USGovt deficits must be covered, and the foreigners will continue not to purchase the USTBonds. They already will be shedding them en masse, as their divestitute continues like a rampaging storm. The enormous marginal new supply and absent demand within the US walls will result in severe devaluation. The USTreasury Bonds will offer a higher yield with a lower currency value, in order to attract foreign buyers again for its toxic Third World debt. Expect probably a devaluation of the Shit Dollar with a first sudden quantum step like 30% down. When it finally trades more freely like in the FOREX open market introduction, it should suffer another quantum step down. Such launch will be traumatic, loaded with shock, and begin the sweeping perception of Third World America.

The loss of its industry will become a major point of discussion and debate, for attracting it back. Harsh blame will be given for decisions to move industry to the Pacific Rim, then to China. More likely the open trading could result in 10% decline per month for a while. In the end, the internal domestic newly split Shit Dollar could be devaluated by 70% to 80%. That is exactly what it deserves, in response to annual $trillion government deficits, annual $400 to $500 billion trade deficits, a newly arrived higher Current Account Deficit from the global USTBond selloff, a grossly inadequate industrial base, wrecked financial markets, and deep corruption broadly across the top echelons. The symptoms are recognized as Third World.

The severe New Dollar devaluation will spawn a wave of global investment in new US-based businesses. A great deal of adjustment must occur as pre-condition. However, the Foreign Direct Investment (FDI), possibly led by China, must contend with four major forces and factors. 1) The United States will be recognized as a totalitarian state with an inherent police state run by fascist USGovt, along with numerous dictatorial strictures and oppressive rules & regulations. The political system will obstruct progress. 2) The internal chaos will have to settle, as order is to be restored, while the violence (like at food centers, gas stations, and ATM cash machines) must abate. The disorder will obstruct progress. 3) The price inflation and supply shortages must find an equilibrium, to be found as visible in the exchange rate of the new Republic Shit Dollar much lower than many forecasters anticipate. The adjustment period will obstruct progress. 4) Banks will depart the United States, viewed as hostile and a wrecked zone, as the main commercial centers to spring up will be fostered Industrial Park zones, under new USGovt guidelines and incentives. The Chinese will dominate them, with USTBond ready to invest. The broken credit engines will obstruct progress.

The foreign firms will be destitute and damaged, with little to invest. But the Chinese have paved the way with giant loans from Wells Fargo, using USTBonds as collateral, at such high volume that the USGovt is both angry and feeling betrayed. But the federal officials cannot realistically prevent the Chinese credit leverage, if done constructively. It is carpet bagger activity by any other name. The heavily devaluated new Republic Shit Dollar will precede the colonization of the United States, and its long re-industrialization process against the wind of corruption and disorder and dysfunction. The carpet bagger colonists will rely upon the USGovt Police State to maintain order, and to deliver the workers on site to produce at the mills. Wages will not be high, and neither will fringe benefits be ample. Worker conditions will be worse than the old US mills in the 1960s and 1970s and 1980s, but better than the sweat shops operated in China and parts of the Pacific Rim. As footnote, bear in mind that each major currency nation (UK, Western Europe, Japan, Switzerland) will have a parallel adjustment, but none as violent and disruptive as in the United States. No other nation abused its privilege, extended the financial corruption, and sustained its imbalances with phony patches like the United States.

◄$$$ THE INDIRECT EXCHANGE CONCEPT WILL CONTINUE TO ACCELERATE. A QUICK REVIEW AROUND THE WORLD CAN IDENTIFY A WIDE RANGE OF LOCATIONS FOR THE DISCHARGE. THE USTBONDS ARE BEING USED AS CURRENCY BY THIRD PARTIES (MOSTLY CHINA & RUSSIA) TO PAY FOR LARGE ASSETS SALES AND ENERGY PURCHASES. THE USTBONDS ARE BEING DUMPED. A RACE WILL DEVELOP TO CONVERT THE USTBONDS BEFORE A FINAL RESTRUCTURE WRITEDOWN. $$$

In past Hat Trick Letter reports, some major Indirect Exchange routes had been identified. The biggest two were the Rosneft buyout of the British Petroleum stake in the TBK-BP huge Russian energy firm for $55 billion. The deal will see the Russians unloading those $billions in USTBonds, sent to London banks where they cannot be refused. The other large deal is to be the payment by China for Russian crude oil delivered via the vast network of Asian pipelines. The Chinese will pay the huge annual energy bill in USTBonds, a steady discharge. Other occasional small fry routes have been identified, like South American liquidations of the prized assets of Batista. The Chinese will swoop in and spend their USTBonds in the distressed sale and acquisitions. Other grand examples are in Africa, where China acquires mineral and energy deposits paid in USTBond currency, along with beneficial projects like community centers, schools, and hospitals. Recall that China deals in trade, while the United States deals in surveillance, banks, borders, viruses, agri seeds, and weapons (the Nazi way).

The alert EuroRaj identified another large Indirect Exchange from China, one that had gone unnoticed on this desk. China has disbursed more than $40 billion in credit to Venezuela via a bilateral investment fund. The bilateral investment fund broadly surpasses the other options like with the Intl Monetary Fund. Under the China-Venezuela Fund, established in 2007 during the administration of late autocrat President Hugo Chavez, a total of 226 different infrastructure and development projects are being carried out. They include new metro transportation lines, highways and railways, as well as downstream projects in the oil sector. China is one of the Venezuelan Govt's main sources of external financing and a key ally of the South American nation in the political, technological, and energy spheres. It is sort of like a swap line but devoted toward a specific set of projects. The Chinese contributions to the fund are repaid with oil shipments in a locked supply. Just another trade deal that serves two purposes, supplying oil for import to the Kingdom, and a dumping ground for USTBonds held. See the Latin American Herald Tribune article (CLICK HERE).

The Indirect Exchange usage of USTBonds will contribute to the external pressure on the USDollar, from which the USGovt will be forced to ramp up the QE volume in bond monetization, and then split the USDollar for a domestic currency that is heavily devalued. The radical action will take place as the USD is dropped from global reserve status. Several creditor nations will follow suit in the Indirect Exchange movement, including Brazil, Japan, Hong Kong, Taiwan, Thailand, Singapore, South Korea, Luxembourg, Norway, and Ireland. The exchange of bonds will grow and become a global stampede, then a race to extract value before the USTreasury Bonds default and convert to 65 cents on the dollar during a Global Restructure Conference, with the USMilitary having a seat to ensure compliance. The Jackass forecast of a USGovt debt default made in late 2008 is slowly taking shape.

◄$$$ THE CHINESE DO NOT WANT USDOLLARS. INSTEAD, THEY WANT GOLD. USTBONDS WILL TURN TOXIC SOON, THE ONLY BUYER BEING THE USFED. THE CHINESE HAVE BEGUN DUMPING IN HEAVY VOLUME, IN A GRAND CONVERSION TO GOLD BULLION. FOREIGN CREDITORS WILL QUIETLY USE THE BRICS BANK IN CONVERSION. $$$

Ken Goldman of Bloomberg reports on the contrast of past experience a few years ago versus today. He wrote, "You could walk into a vault in London and they were packed to the rafter with gold, and the gold would trade from me to you to somebody else. You could walk into these vaults today and they are virtually empty. All that gold has been transferred out of London, 26 million ounces. [Later,] the Chinese do not want US dollars anymore. They want gold." The effect is finally being observed and felt, the movement of gold over a period between 18 and 20 months, the gold bar exodus at perhaps as much as 1000 tons per month since April 2012. The depltion in London and Switzerland is magnificent, and enough to grease the skids of the Global Paradigm Shift. See the Zero Hedge article (CLICK HERE) which includes a video clip. As the USTreasury Bonds turn more toxic, moreover recognized openly as toxic paper, the USFed will be horribly isolated as the primary buyer. They will be forced by the creditors to convert them to USDollar cash, which the creditor nations will convert to Gold Bullion. The main conversion process plant will be the BRICS Bank.

## LOST CONFIDENCE IN CENTRAL BANKS

◄$$$ BARROSO CROWED TRIUMPHANT (LIKE A FOOL) AS JOBLESS EUROPE WASTED FIVE FULL YEARS OF GLOBAL RECOVERY. A COCKY CORRUPT CARNIVAL BARKER HAS DECLARED VICTORY IN A REPEATED CHARADE EXERCISE THAT PRESIDES OVER DECEPTIVE BANKER WELFARE. THE FACTORIES ROT AND THE FIELDS BURN, WHILE THE ELITE BENEFIT FROM WELFARE AND WATCH CALLOUSLY. UNEMPLOYMENT HAS REACHED LEVELS THAT STIR FEARS OF POPULAR REVOLT. THEY CONTINUE TO APPLY PHONY SOLUTIONS AS THE SYSTEM DEGRADES AND WEALTH FRITTERS AWAY. SPAIN, PORTUGAL, AND ITALY DECAY OPENLY. THE DRAGHI EURO CENTRAL BANK PRESIDES OVER TOXIC PATCH SOLUTIONS AND LIQUIDITY DRAINAGE. EXPECT ANOTHER $1 TRILLION DOLLAR SWAP FACILITY AS A QE EXTENSION. $$$

The European Union charade continues in a most disgusting manner. Jose Manuel Barroso has declared victory again, his public behavior akin to a cocky strutting worm. The European Commission chief tells us that the EuroZone crisis is over, victory won. The scorched earth contraction policies founded on poison pills have succeeded. Ireland has conducted a clean exit and has entered the sovereign bond markets again, seeking funds. Latvia has joined the Euro and has quickly become the fastest growing EU country. The propaganda and lies are thick. Ireland is highly competitive with its open economy, benefitting from trade ramping up to 108% of GDP. It has three or four times more export leverage than Club Med nations. However, give the credit to heavy Irish trade not in the Euro currency, but in the USDollar and Pound Sterling zones instead. In fact, Ireland was caught in the wrong interest rate regime, which led to a housing & mortgage bubble, the ugly US-Anglo cancer. The Emerald Isle (aka Old Sod) struggles with need for debt restructure, still rising mortgage delinquencies, and erosion of the skilled workforce due to mass migration to the UK, US, and Australia. The Irish public debt remains as 125% of GDP, and the budget deficit is still the highest in Europe at 7.8% of GDP, the twin macro measures. Ireland was coerced by the EU authorities to take on the vast liabilities of Anglo-Irish Bank so as to save the European banking system at the peak of the Lehman crisis and aftermath. If they had taken the Iceland solution route, defaulting on debt and subjecting bankers to prison, other PIGS nations would have followed the renegade model. The stoic nation has survived the abuse. To cite it as a vindication of EU strategy is the height of arrogance and deception.

The recitals on Latvia, Spain, and Portugal are not success stories either. Each nation suffers from heavy unemployment, and mass exit of population (often skilled labor), with the young becoming a class in despair. The public debt in Portugal has jumped from 108% to 128% of GDP in the last two years (measured by IMF). The same success(?) has been replicated in Italy and Spain. The poison pill of budget austerity is the common elixir, a deeply damaging non-solution, precisely as the Jackass warned since 2011. Deficits grow under the Austerity Budgets, since business formation is lacking and the big banks are not liquidated. The EuroZone sharing the common Euro currency continues to slide into deflation and deterioration. Recall well the mood of optimism in 2010 and again in 2011, when false dawns were followed by spasms of the economic crisis. The actions of the Goldman Sachs mole Mario Draghi at the Euro Central Bank have been deceptive (hidden bank welfare), destructive (insisting on poison pills), shameful (not seeking solutions like big bank liquidation), and heretic (LTFO toxic super senior paper). Draghi is a Weimar captain, a Big Bank harlot, and a pompous arrogant ass, no more, no less.

The EuroCB removed the risk of an Italian and Spanish debt collapse in July 2012 by securing German support for an emergency backstop, granted unwillingly. The EuroCB fulfilled its heretic role of lender of last resort, again refusing to permit big bank liquidations. The macro data is not positive, certainly not enough to crow triumphant. Broad M3 money has been flat for six months. Business lending has fallen by 3.9% over the last year. More fiscal drag in 2014 will come as austerity winds down. These are successful byline banners. No EuroZone internal growth is being generated. China took much of industry, just like from the United States, as globalization acted like a Western wrecking ball. Europe suffers from sclerosis, as countless risks fester. The big European banks are cornered and compelled to do their own endogenous tapering, as Ambrose calls it. These banks must pay off EUR 700 billion of ECB loans from the toxic illegal Long-Term Refinancing Operations (LTRO) trap. Expect another huge Dollar Swap Facility to be installed to cover the bill, a hidden QE back door but more visible. The credit swap line will be worth a cool $1 trillion. While the USFed balance sheet has risen by explosive bubbly volumes, the EuroCB balance sheet has fallen from EUR 3 trillion to under EUR 2.3 trillion in a single year. The USFed is a garbage collector, while the Euro Central Bank is a garbage dispenser. See the UK Telegraph (CLICK HERE).

◄$$$ MICHAEL PENTO IS NOT FOOLED. THE USFED WILL ABANDON ITS DECEPTIVE QE TAPER TALK, SINCE REDUCING BOND MONETIZATION PURCHASES WOULD CRASH ALL MAJOR SECTORS OF THE USECONOMY. ART CASHIN BELIEVES THE USFED MAY HAVE TO DISASTROUSLY REVERSE ITS THREAT TO TAPER QE BOND BUYING VOLUME. NECESSITY WILL PREVAIL OVER PRUDENCE. THE USFED PRESIDES OVER FAILURE, SURELY TO BE EMBARRASSED AND POSSIBLY LOSE IMPORTANT CONFIDENCE. CASHIN POINTS TO SAGGING MORTGAGE APPLICATIONS, THE EXACT SAME SYMPTOM TO SHOW BEFORE THE LEHMAN BUST. A REVERSAL BY THE YELLEN FED TO QE WITHOUT LIMIT COULD CAUSE A FRESH CRISIS. $$$

Michael Pento, schooled in Austrian Economics, believes the central bank cannot do any tapering of bond monetization. The USFed is stuck with an economy in terminal recession and a sclerotic insolvent financial system, with no critical mass of demand for USGovt debt. Tapering and its propaganda will lead down a disastrous road. Pento sees no hope for the USEconomy to withstand higher rates. The nominal debt level is much higher than at the start of the Great Recession five years ago. To permit rates to rise would surely collapse the system in 2014, by crushing the real estate market, the stock market, and the entire array of big businesses. Pento expects the Taper (and its Talk) to be aborted sometime in 2014, as a permanent form of QE will be ushered in officially. Recall the Jackass forecasted QE to Infinity in 2012. The central bank must keep real rates negative, and keep the big banks buying stocks and bonds. Real rates are negative when the standard interest rate is below the prevailing price inflation rate. The big risk is forcing poverty on the pension funds and insurance sector, which cannot earn enough profit on bond carry trade held in their vast portfolios in order to sustain their businesses. Pento speaks in plain terms to dimiss the Bernanke and Yellen transparent propaganda. See the King World News interview (CLICK HERE).

Art Cashin is director of floor operations at UBS, which has $650 billion under management. He is a folksy charming fellow who tends often to speak the truth from the NYSE floor amidst the vipers. Cashin has an intriguing view. He anticipates, like in every transition in the past 50 years, the new USFed Chair Janet Yellen will be tested in her first year. For Greenspan it was the Black Monday crash of 1987, and for Bernanke it was the Lehman bust and great recession. Cashin pointed to the rising mortgage rates and falling mortgage applications, which are at the level when Lehman was deconstructed. The pressure could force the USFed to reverse the Taper Talk with a red face, as he called it. The result would be lost confidence in the new Yellen Fed quickly out of the gate. It would bring questions about the USFed possibly holding back on horrendous data, not released. He correctly points out that the USFed has a long history of rather poor forecasts. The repercussions could become serious, like with the bond market sending interest rates higher, and putting extreme pressure on interest rate derivatives. A big bond market accident could occur soon in this new 2014 year during the traditional Yellen test. See the King World News interview (CLICK HERE).

◄$$$ JAMES KUNSTLER PUBLICIZED THAT THE USFED HAS MONETIZED $94 BILLION PER MONTH, FROM A REPUTABLE SOURCE. THEIR TAPER TALK IS PURE LIES. THEN FACTOR IN THE CARIBBEAN AND BRUSSELS SLUSH FUNDS FOR BOND PURCHASE. FINALLY FACTOR IN THE INTEREST RATE SWAP FABRICATED DEMAND BY THE EXCHANGE STABILIZATION FUND. KUNSTLER EXPECTS THE $100 BILLION MONTHLY VOLUME TO BECOME FACT SOON. $$$

Kunstler does not permit USFed Chairman Bernanke to lie on his way out of office. The official story is that the central bank will supposedly monetize $10 billion less debt per month, $75 billion down from $85 billion. They are to reduce by $5 billion the purchases from the USTreasurys urinary stream and $5 billion from the rotten mortgage barrel. Don't believe their lies. The reality differs materially. Refer to the curious report out of the American Enterprise Institute by John Makin, which claims that the USFed's actual purchase of debt paper amounted to an average $94 billion a month through the year 2013, not $85 billion.

Kunstler has often commented on their ability to conduct back-door buying operations of all kinds, much like the Jackass has described. He conjures an image of plastic grocery bags of debt securities floating in the horse latitudes of the Pacific Ocean. The Fed can hose up bad paper all day long, yet misrepresent it with obscure accounting methods. The American people are left in a matrix of lies. The financial press is nowhere to shine the light. The hyper monetary inflation can be seen under the many deceptive rocks planted in the public gardens. Kunstler suggests that some of the fabulous surveillance technology be focused to reveal the rigged financial markets and hidden QE channels. He concluded, "Not only will the Fed eventually (i.e. soon) fail to taper in any meaningful sense, but before this is over they will ramp up the purchases of worthless securities beyond $100 billion a month through every back door and trap door in the infamous Eccles Building, including perhaps Janet Yellen's dainty fundament. The inflation, whatever that is, will sit out there waiting behind the Hoover Dam of the Fed's balance sheet. I would not want to be in Las Vegas when the first cracks appear on it." Kunstler is one colorful guy with a flair, and deep perspective.

◄$$$ THE USFED SOAKED UP A HUGE BOATLOAD OF BOND SUPPLY AT YEAR END, WHICH MAKES A MOCKERY OF ANY TAPER TALK. THE REVERSE REPO IS A MASSIVE RESIDENT BACK DOOR FOR VISIBLE Q.E. WHICH ADDED VOLUME. THEY ARE CONSISTENT CONSUMMATE LIARS ON TAPER TALK, AS DATA IS WITHIN VIEW IN STARK CONTRADICTION. $$$

In late December, the USFed announced an expansion to its Fixed Rate Reverse REPO facility. The maximum REPO allotment per counter-party was increased to $3 billion from $1 billion. It is six times larger than its original amount. Curiosity was stoked. On the final day of 2013, the bombshell was released. They announced an unprecedented $198 billion among 102 entities was reverse REPO'ed. It seemed like a misprint, done by fat fingers. Witness the most grotesque temporary open market operation conducted by the USFed in history. They permit the big banks to conduct endyear window dressing, the volume for which is several times more than total USTreasury holdings by the Primary Dealers by even USFed disclosure. Not only is an unprecedented new sudden $200 billion in free liquidity floating out there on the margin, but the august crime syndicate HQ has exposed its own back door for much higher QE volume that makes all Taper Talk a big fat lie. The REPOs and Reverse REPOs are overnight loans to help with accounting and cash flow problems, the latter being a more slippery version with a vaporous whiff. See the Zero Hedge article (CLICK HERE).

The USFed is abusing the Reverse REPO process to conceal massive bond monetization. The hidden devices are being leaned on heavily, the message cited all along in the Hat Trick Letter. The true QE volume is more like $150 to $200 billion per month. Think of it like a credit card usage. The manager has all kinds of bills, who claims the credit is under control with monthly spending, food bills, rent, etc. Then at year end a massive payment of $200 billion is slipped in on the credit card account to cover everything, which sends the balance skyward. Conclude not under control, the QE volume much higher, the Taper Talk simple propaganda, pablum for the dullard deceived public who cheer the false marquee billboards regularly like junkees and idiots.

◄$$$ THE USFED CHEATS AND DECEIVES BY ABUSE OF THE REPO WINDOW. IT IS THE NEWEST DECEPTIVE DEVICE TO CONCEAL BOND MONETIZATION WITHIN THE QUANTITATIVE EASING PRETEXT. IT IS OF ENORMOUS VOLUME. IT IS VISIBLE. $$$

In probability theory, we sometimes resorted to a heuristic argument. The heuristic explanation provides a rough cut viewpoint that makes sense and satisfies the general learned message, done to aid in understanding more than to provide formal proof. Here is a REPO heuristic. The REPO is a window to provide overnight liquidity for bond holders, mostly in the form of USTreasurys. Holders use the window when cash strapped, given loans against USTBond collateral, for a period of maybe one to seven days. Think of it like a loan from your father for a couple days, where you give him your wedding ring as collateral, or a valued coin collection. The REPO market is legitimate, serving an official function, since the collateral is returned almost always on payback. However, what the USFed is doing with it is not legitimate at all. The usual USFed QE activity for bond purchase is through the official registered primary bond dealers. The volume of QE bond buys is well recorded, well noticed, and well publicized. The Reverse REPO is an accepted charade.

For the last two years, the primary bond dealers have been on the verge of being killed off, one by one. They are holding USTBond inventory, which almost no domestic or foreign investors want. They shuffle USTBonds to and from the USFed itself, and almost nobody else. What the Weimar Engineers are doing is abusing the REPO window. Regard a Reverse REPO as being a loan made to nobody at the window, just for shoving more money into the system with which to purchase USTreasurys at a time when almost no buyers exist, but for which no collateral is posted since no party steps forward. It is like your father lending you and your brothers money when nobody stepped forward in appeal, no collateral given to hold in return. It would mean your father is giving his sons (including you) a gift, the funds then used to pay the bills. Watch the Reverse REPO volume recycled over and over again, for a constant slush channel that does not have short time limits.

Conclude that the USFed is abusing the REPO window, shoving many $billions onto the other side. It is not clear into whose hands the funds go, but conclude easily that the funds are used to buy USTBonds without valid buyers. It is also not clear that the funds are ever returned, since no party accepts the funds, and if no collateral is posted, the arbiter is missing. It is one directional. With the REPO window abused, the official QE volume is not increased, since the back door is used. This is a new method that the USFed attempts to hide its gargantuan QE volume. The realistic QE volume is like $150 to $200 billion per month, counting all their hidden devices. If the interest rate derivatives are fully accounted for, the volume of USFed doles in QE channels could be around $1 trillion each month. Nowhere does the USFed mention Interest Rate Swap contract monetization. They are covering much more than USTreasury Bonds and USAgency Bonds. They are almost certainly covering Collateralized Debt Obligations and bank derivatives led by the IRSwaps gone bad. The CDOs are leverage squared mortgage bonds, meaning leverage in contracts using the REMIC contracts created for Fannie Mae bins. The entire US$-based bond market is collapsing, and the Reverse REPO is abused to hide the actual QE volume. Taper Talk is pure lies, basic propaganda, easily dismissed.

## BROKEN CORRUPTED FOREIGN BANKS

◄$$$ EURO BANKS FALL A $TRILLION SHORT IN CAPITAL, WHICH PUTS ENORMOUS PRESSURE ON THE EURO CENTRAL BANK TO PARTICIPATE IN A GRAND CONTINENTAL QE INITIATIVE. THE BANKING SYSTEMS IN FRANCE AND GERMANY ARE SEVERELY LACKING IN CAPITAL. THE BOND MONETIZATION VOLUME BY THE MAJOR CENTRAL BANKS WILL GROW INTO AN ENDLESS PARADE, NOT SHRINK. A TRANSITION IS IN PROGRESS IN EUROPE, ON DIRECT EURO CENTRAL BANK OVERSIGHT. BANK STOCK ISSUANCE IS PLANNED ALONG WITH ACCOUNT CONFISCATIONS (BAIL-INS). $$$

European banks have a capital shortfall of an estimated EUR 767 billion (=US$1.03 trillion) as nothing has been fixed, no solutions pursued, only toxic patches applied with poison pills administered. The Euro Central Bank concluded a probe into the financial health of the region. The French banks show the biggest capital gap of EUR 285 billion, not surprising to the Hat Trick Letter since France is a hidden resident in the insolvent PIIGS pen. The German lenders show a large capital gap of EUR 199 billion. Spanish banks have a shortfall of EUR 92 billion, while Italian banks lack EUR 45 billion. The study was done by Sascha Steffen of the European School of Mgmt & Tech in Berlin and Viral Acharya at New York Univ, dated January 15th. The figures assume a benchmark capital ratio requirement of 7%, applied to book measures of leverage. In their final report, they clearly stated a substantial lack of capital in many peripheral and core European banks, referring to the central bank's Asset Quality Review (AQR) stage of the Comprehensive Assessment.

The Euro Central Bank is conducting in three stages a formal assessment of bank assets, before it assumes oversight of about 130 lenders across the 18-member currency bloc this November. Steffen and Acharya examined 109 of the 124 EuroZone banks that will be part of the AQR, including Deutsche Bank, Credit Agricole, BNP Paribas, and Banco Santander. The authors see particularly high risks among German state owned banks, called Landesbanken, which they expect will require capital issuances and possible bail-ins. Some German banks should expect to be viewed as still lacking capital in a national perspective, such they are so large within the European context. The analysts suggest bondholder losses, a departure from the past. The report concluded, "Our results suggest that with common equity issuance and haircuts on subordinated creditors, it should be possible to deal with many banks' capital needs. Some will, however, require public backstops, especially if bail-ins are difficult to implement without imposing losses on bondholders, who may themselves be other banks and systemically important financial institutions." The nested nature of bank ownership is recognized, an important risk factor in a contagion ripple effect. They pointed directly at the banking sectors in Belgium, Cyprus, and Greece as the most desperately requiring backstops, which is the zipword to mean direct aid from either the central bank or government coffers. See the Bloomberg article (CLICK HERE).

The Euro Central Bank will be forced to do what the USFed did in 2012 and 2013. The US maestros encouraged a bank carry trade to rebuild Wall Street bank assets in a permitted leverage game. Its risk is acute, from rising rates. Expect the EuroCB to oversee a European carry trade, but the device is unclear since USTreasury Bonds are in trouble. As footnote, individual banks are in deep trouble, openly recognized, but the story suppressed. Huge holes in the crippled giant ganks are harder to cover up. The UK Telegraph published an article on HSBC that was removed from the website. Surely it did not set well with the London community. HSBC is judged to require perhaps $80 billion to fill a capital shortfall, called an end to a charade. See the Asianomics Group article (CLICK HERE).

◄$$$ THE SWISS NATIONAL BANK (CENTRAL BANK) EXPECTS A $10 BILLION LOSS FOR FULL YEAR 2013. THEY TYPICALLY SUPPLY THE SWISS GOVT WITH A BONUS PAYMENT (UNLIKE A PARASITE COST). NO PAYOUT THIS YEAR, AS A RESULT OF HEAVY GOLD MARKET INTRUSIONS. THEY DO NOT MENTION THEIR HIGH RISK EURO CURRENCY PEG, WHICH SHOULD DELIVER SOME OUTSIZED LOSSES SOMEDAY SOON. $$$

The Swiss central bank will not make its annual payment to the government for 2013. The gold price decline is given blame, as it caused a loss of SWF 9 billion (=US$10 bn). The 30% fall in the gold price in Swiss Franc terms resulted in a hefty SWF 15 billion cumulative asset loss for the SNB. The gold loss was offset by a gain of SWF 3 billion on its FOREX positions, and a one time gain over SWF 3 billion from the sale of assets associated with its UBS fund. The Swiss are mainly responsible for Euro currency lifts, linked to their peg. Last year, the value of 1040 tons of gold held by the SNB suffered damage. The central bank President Thomas Jordan stated, "We have warned the budget chiefs over the past two years that we have a big balance sheet with lots of risk, that it is to be expected that we have years with big profits and years with big losses, and that it is entirely possible that we are not able to make a payout." Without mention, the venerable SNB can give a hat tip to JPMorgan et al for the losses, all to keep the current broken fiat paper currency regime in place. JPM pushes down the gold price routinely with naked short ambushes, in league with the BIS in Switzerland also. Not to worry though, since the Swiss gold is worth an order of magnitude more than the phony COMEX price indicates. It is an empty store.

The 26 Swiss cantons (independent counties) are the central bank's biggest shareholders. Together with the government, they are typically in line to receive an annual payment of one billion Swiss Francs, provided the profit sharing reserve is not negative after profit appropriation. No profit this year, a shock. Some controversy has stirred over its gold management from a popular initiative. The proposed demand calls for at least 20% of the central bank assets to be held in the form of gold bullion. The measure would also block the sale of gold assets, and further require all SNB gold to be located inside Switzerland. Currently, about 20% of the its gold bullion is held at the Bank of England and another 10% at the Bank of Canada, with the remainder stored domestically. The SNB president Jordan offered a lame excuse last April that the initiative could limit the central bank's ability to conduct monetary policy. More like limit their ability to help in gold price suppression and USDollar support.  

The SNB balance sheet has expanded significantly since it declared and enforced the 1.20 currency peg. Admist crisis controversy, the bank fixed the SWFranc to the Euro ratio at that publicly declared level back in September 2011. Its FOREX holdings are valued at SWF 446.4 billion (=US$491 bn). They are primarily held in Euros and USDollars, the Euros at huge risk of falling versus the SWFranc. Compliance with the new stricture would force the SNB to buy a large amount of gold to meet the 20% requirement, if the initiative is accepted, so claimed Jordan. The Swiss People's Party kicked off the initiative after failing to obtain Parliamentary support, since its members kneel before the bankers. The Party has submitted the mandatory 100,000 valid signatures for a referendum. Next is to set a date for the national vote. A tremendous risk looms overhead. Maintaining the Euro-Franc peg means very heavy investment in Euros, so as to avoid their conversion into SWFrancs. They do not wish for the domestic SWFranc to rise by 20% to 40%. It might anyway, when the USDollar and Euro currencies have their day of reckoning.

The Swiss are victims of their own secure haven, whatever that is anymore. An enormous amount of European money has been moving out of danger zones like Southern Europe, even the stronger zones from Germany, Netherlands, and Austria, and into the Swiss hills. The Swiss National Bank has prevented the inflow (which still continues) from lifting the SWFranc exchange rate and causing staggering economic problems. A preview for economic shock was seen in summer 2011, fully covered in the Hat Trick Letter at the time, as in higher export prices for a wide array of Swiss products from pharmaceuticals to watches to cheese and chocolates. A currency reset might push the SWFranc up by 50% in a sudden push. Confirmation of its eventuality is the rampant storage of SWFranc currency in shrink-wrapped bills by the CIA in numerous large Swiss homes. They know something. See the Bloomberg article (CLICK HERE).

◄$$$ MAJOR SWISS PRIVATE BANKS BECOME PUBLIC, EFFECTIVE JANUARY 1ST OF 2014. MORE SWISS FINANCIAL SECTOR DAMAGE TO PRESTIGE AND SECRECY. THE SWISS HAVE ESSENTIALLY LOST THEIR TWO CENTURY OLD REPUTATION IMAGE AND PRACTICAL ADVANTAGE. THEY HAVE BEEN PENETRATED BY THE UNITED STATES, SUBJUGATING THEM DURING THE FINANCIAL CRISIS, RENDERING THEM NO LONGER HAVENS OF ANY TYPE. $$$

After several Swiss private banks went public in 2013, three other major banks have finally gone public. They are Mirabaud, Lombard Odier, and Pictet. The partners will yield responsibility for client assets, client accounts, and portfolio performance to a board that answers to share holders. The Swiss banks had for the longest time been world famous since 1923, when the Swiss passed a law for strict banking secrecy in their country. Some attribute the transition to global economics, even the power of major nations worldwide, to delivering hard blows to the Swiss banking system. It had been a wonderful haven for dirty money (Colombian drug cartels), stolen money (Madoff funds), and tax dodgers (shell corporations). The Western media did not touch this story. A tough new regulatory environment has combined with a formal crackdown. On January 1st, the elite bank trio radically changed their business model by abandoning a unique status of Swiss private banks. The nation's private banking sector for the last two centuries has been based on rules which make the elite managing partners personally responsible for the money they manage for wealthy clients. The transformation is significant. Therefore if the bank suffers deep distress or a catastrophe, the partners can lose their own money, which includes much of their bank foundation assets quickly. Therefore it means the losses might be nationalized. One is left to wonder if the Swiss banking sector faces an anticipated catastrophe soon. A time honored tradition is passing into the night. No longer private, these banks will be subject to requirements to publish their financial results, to reveal their client base, and to disclose large movement of funds. The UBS and Madoff scandals are just the tip of the iceberg of controversy for Swiss banks.

## BROKEN CORRUPTED AMERICAN BANKS

◄$$$ WALL STREET ESTIMATES ANOTHER $50 BILLION BILL TO SETTLE USGOVT MORTGAGE LEGAL ACTIONS. IT SEEMS NO SETTLEMENT IS COMPREHENSIVE TO END THE SKEIN OF PROSECUTIONS AND LAWSUITS. IT IS WITH GREAT DIFFICULTY TO RESOLVE MULTI-$TRILLION BOND FRAUD AND CONTRACT FRAUD. JPMORGUEN WAS SETTLED AS A MODEL CASE, FROM WHICH TO QUICKLY RESOLVE MANY OTHER BANK LAWSUITS. REGARD THE PENALTIES PAID AS A VERY SMALL COST OF DOING BUSINESS, IN CRIMINAL ENTERPRISES. $$$

Wall Street is in line to pay out another $50 billion to win peace from federal authorities and get them off the banker backs. The figure does not include the JPMorguen recent payout in the big cut deal. The USGovt has many arms from which to take aim at the banks over their role in the mortgage crisis. The criminally rooted big money center banks must brace for more reckoning in an endless skein of lawsuits. The other banks are using a calculus from the latest JPMorguen record $13 billion mortgage settlement in November as model to determine just how much each bank might have to pay in order to end the torrent of USGovt mortgage litigation. The gained impression is truly no end in sight. Settlements have gained particular urgency among the bank board members. Any deal could net a meager $15 billion in relief for consumers, better described as crumbs tossed before their feet. The homeowners could see reductions in the size of loan payments. The banks are preparing to shed half thir annual profits.

The USDept Justice lead prosecutor Tony West hopes the JPMorgan settlement can offer a model for other financial institutions in line for similar investigations and deals. JPM was the biggest bank, but perhaps not the biggest violator, a distinction that goes to Bank of America. Acquisition of major violators complicates closure, as in Washington Mutual and Countrywide. In focus is restitution in some (probably paltry) form after the big banks duped investors into buying mortgages in the heady days before the financial downturn. Misrepresentation in bond purchases is the criminal offense. The analysis indicates that Bank of America could ultimately settle for $11.7 billion in penalties, with an additional $5 billion in relief to homeowners. The Morgan Stanley combined tally could be around $3 billion, with a third going to consumer relief. The Goldman Sachs total could come to $3.4 billion. For the Royal Bank of Scotland, the total price could be around $10 billion, which will prompt an outcry in Britain, where the UKGovt owns a majority stake in the bank. Citigroup could pay roughly $1 billion, the analysis shows. The potential penalties for several other banks is expected to be under $1 billion. Anticipating the potential loss, banks have also set aside large reserves to absorb the settlements and litigation costs. The same corrupt banks have been regularly pulling funds from the same loan loss reserves since year 2010, huge accounting gimmicks, all very legal, just entirely stupid, calling them profits in conjured quarterly reports. The practice must be reversed, or else difficult secondary stock issuances must be ordered. See the New York Times article (CLICK HERE).

To be sure, the many legal deals are hopeless window dressing exercises by a bunch of hard core criminals who have seized control of the USGovt, operating under the shadowy USFed wing. The settlements have two striking characteristics. The amounts are a trifle compared to the multiple $trillions in bond frauds. The Wall Street banks indirectly stole much of the US housing market capital stock equity. Second, the deals involve deferred prosecution, which means no jail time, no lost jobs for executives, and no company dissolution as a criminal enterprise. Obviously, it means no RICO application to seize ill-gotten gains from widespread enduring prolonged fraud. As the Hat Trick Letter has indicated for three years, the settlements are small and can be considered a mere cost of doing business while the Wall Street crooks netted a mountain of profit.

A favorite bank analyst Chris Whalen slipped in the sneid comment when on as Bloomberg Financial guest host, calling the fines a cost of doing business. The others on the set ignored his comment. The criminal fraud also came from Fannie Mae fraud thefts and outright bond counterfeits, the REMICs leveraged shell games and MERS title duplicates. It came from CDO leverage squared rubbish, and illegal home foreclosures. Conservatively call the total fraud as $1 trillion, from several years of bond issuance fees, basic bond counterfeit, and other devices. The $50 billion settlement would be half of 1%, a mere tiny cost of doing business. The typical settlement on narco money laundering has been one-third of 1%, seen in the infamous Wachovia deal in 2009, that almost nobody paid attention to. The Jackass did.

◄$$$ THE LOS ANGELES TIMES BOLDLY CALLS THE BIG BANK MORTGAGE SETTLEMENTS AS BOGUS. PARTS OF THE DEALS ARE WRAPPED IN PAST SETTLEMENTS. PARTS OF THE DEALS ARE TAX DEDUCTIBLE EVEN. THE PERCEPTION THAT BANK FINES ARE A SMALL COST OF DOING BUSINESS HAS GAINED MUCH GROUND. $$$

The hidden truth behind the huge fines the federal government has extracted from banks and Wall Street is that because of credits, tax write-offs and other accounting gimmicks, the penalties are worth only a portion of what is cited in public statements. The publicity is of resolution, the key. The Los Angeles Times reveals the deception, writing "The measure reflects a rise in public discontent with settlements that look like major penalties, but shrivel into wrist slaps when reality is accounted for." Two US Senators (Elizabeth Warren of Massachusetts, Tom Coburn of Oklahoma) have introduced legislation to force a clear disclosure on the details of the fines. For instance, Warren's office disclosed that the $25 billion National Mortgage Settlement with five major banks in 2012 actually included a $17 billion credit for routine conduct by the banks such as following mortgage disclosure rules. The same deal also permitted banks to escape a $400 million claim from the US Comptroller of the Currency by merely promising to comply with the terms of the mortgage settlement. More recently, a $13 billion settlement with JPMorgan Chase reached with USGovt regulators in November has its own scummy hidden sweet details. The deception is both inventive and very visible. The big settlements appear to be shells.

The LA Times dug into the mega-deal $13 billion total, only to discover $7 billion was tax deductible, another $4 billion was actually taken from another settlement previously struck with the Federal Housing Finance Agency, and $2 billion represented credits to come from merely increasing lending in low income communities. The Truth in Settlements Act bill led by Warren and Coburn would require public disclosure of how much of such settlements is tax-deductible, and how much involves credits for routine conduct. The intrepid newspaper was quick to point out that the settlements never prosecuted malfeasance by individuals, neither department heads nor executives, who oversaw the widespread continuing fraud over several years. The white collar crime never has consequences to those persons. The big banks take the penalties and fines in stride, chalking them up to the cost of doing their criminal business. The New York Times noted some experts believe that banks such as JPMorgan and Bank of America have become so large and complex that it would require breaking them up in order to keep their many functions in proper oversight, to assure effective compliance, and maintain executives in line. See the Money News article (CLICK HERE).

◄$$$ THE BOND FRAUD BY THE WALL STREET BANKS HAS 100 CHAMBERS. FRESH NEW MORTGAGE BOND FRAUD INVESTIGATIONS HAVE COMMENCED. UNDER FOCUS ARE JPMORGAN, CITIGROUP, BARCLAYS, AND DEUTSCHE BANK. EACH SET OF VICTIMS PUSHES FOR A NEWLY SPAWNED CASE, WHICH MUST BE DEALT WITH AND SETTLED. THE MORTGAGE BONDS WERE SOLD WITH MISPRESENTATION, AN OFFSHOOT OF THE ULTRA-LOW FED FUNDS RATE. THE INVESTORS CHASED YIELD AND MISSED THE FRAUD. THEY BOUGHT TOXIC PAPER THAT BANKS KNOWINGLY SOLD. $$$

Yet another big USGovt investigation has commenced. Federal regulators are probing whether several big banks (the same usual suspects) deliberately mispriced mortgage bonds in the years following the financial crisis. The new investigation is a potential blow to the banks which have already paid $billions in penalties and fines to various federal agencies, in a legal nightmare that will not quit. It should never quit, until the big banks are dissolved, assets sold in investor restitution, and executives given jail time. Not only did the big banks produce the intractable financial crisis with a nucleus in the mortgage finance arena, but they sold mortgage bonds after the Lehman failure in gross misrepresentation. They dumped toxic paper on the unsuspected, many of which were funds seeking higher yield. Regard the enduring bond fraud as a consequence of the ultra-low USFed official interest rates. The probe focuses on whether traders bought or sold impaired residential mortgage backed securities at inflated values between 2009 through 2011, following the inception of the financial crisis with no end.

The other banks in the settlement cases are rival banks, hedge funds, and other large investment firms. No end to the types of fraudulent sellers of toxic paper. The banks being probed include Barclays, Citigroup, Deutsche Bank, Goldman Sachs, JPMorgan Chase (again), Morgan Stanley, Royal Bank of Scotland Group, and UBS. As part of the investigation, subpoenas have been sent to several firms. The probe is being conducted by the Securities & Exchange Commission (SEC) and the special inspector general for the Troubled Asset Relief Program (SIGTARP). The big banks are complaining about double jeopardy and repeated settlements to hammer out, but the cases tend not to overlap. Each set of victims results in new cases to pursue, and hundreds of victims lie in the weeds. See the Reuters article (CLICK HERE).

◄$$$ THE BIG SIX US-BANKS SAW A SIZEABLE PORTION OF THEIR 2013 PROFIT VANISH IN LEGAL COSTS. THE VALUE OF THE MORTGAGE BONDS BOUGHT BY INVESTORS VANISHED IN VALUE MUCH MORE RAPIDLY, AND WITH MUCH GREATER SIZE. $$$

Combined profit at the six biggest US banks jumped in year 2013 to the highest level since 2006, despite the allocation of roughly $18 billion in investor settlements to avert prosecution. Several reforms resulted in the bank group's net income to rise 21% to $74.1 billion, according to data compiled by Bloomberg. The figure is second only to year 2006, when the firms reaped $84.6 billion at the peak of the US housing & mortgage finance bubble. Nothing has been resolved, while the big banks play their carry trade game with heavy leverage. The record profits would have been topped last year if not for litigation and other legal expenses. The big banks realistically anticipate these related costs will remain high. The leader of the pack, JPMorgan Chase has paid out over $23 billion in settlements to the USGovt and private parties in the past twelve months. See the Bloomberg article (CLICK HERE). No end in sight for the profit dilution, since mere cost of doing their criminal business. The costs are no different from the mafia paying the families of murder victims a tidy $1 million each to keep quiet and move on. However, if interest rates rise, the big losers will be the big US banks from their bond leveraged carry trade. It will go into reverse and produce magnificent losses an order of magnitude greater than any meager investor lawsuit payouts and penalties.

◄$$$ JPMORGUEN BANKERS JOKED THAT MADOFF'S ACCOUNTING FIRM MIGHT BE A CAR WASH. THE BANK'S SETTLEMENT ONCE MORE RENDERS ITS CRIME AS A MINOR COST OF DOING BUSINESS. THE BANK'S PROFITS WERE OBSCENE FROM THE MADOFF PONZI SCHEME. THE TRUE VOLUME OF FRAUD IS THREE TIMES WHAT IS STATED OFFICIALLY. THE MONEY IS ALL HIDDEN IN SWISS BANKS UNDER ISRAELI OWNERSHIP PROTECTED BY BIZARRE LAWS. $$$

The Jackass makes two points on the Madoff Fund Ponzi Scheme. The fund could not have operated as long as it did without the direct participation of JPMorguen. The big bank established numerous hidden offshore accounts from which to siphon away funds, en route to their final Swiss destination. The movement of funds was not directly from the Madoff accounts to the Swiss accounts. The escape routes were with JPM labels in the money trail, like through Caribbean offshore entities. Second, the total volume of the Madoff fraud is between $150 and $160 billion all tolled, according to contacts of The Voice in Central Europe. The USGovt has painted an incriminating and damning picture of JPMorgan Chase in its dealings with Bernie Madoff and his surprising very few associates. The $1.7 billion settlement in early January portrays JPM bank employees who were either too incompetent to notice, or too devious to bother reporting, or in on the skimming, that Madoff was running a gigantic Ponzi scheme. It is impossible to believe the JPMorgan bank officer assigned for years as liaison to Madoff Securities had no clue how much money was in the Madoff account. He regularly signed off on compliance reports in a blind exercise, or a deeply complicit exercise.

People inside JPM and the banks later acquired by JPM started raising questions about Madoff way back in the mid-1990s, around ten years before the scheme blew up. The JPM officers removed the bank's funds immediately before the Madoff scam was shut down, more insider illicit activity. One JPM senior executive joked via email that they should visit the Madoff accountant's office to make sure it was not indeed a car wash operation. It was in parallel of money wash slick operation with full JPM complicity and participation. The Madoff scam has similarities to the Enron scam, also run by JPMorguen. The Afghan heroin clearing house operation using the Iraqi Export Bank in Baghdad also has parallels to the Madoff and Enron scams. The JPM giant is a massive criminal organization worthy of prosecution and RICO dissection. Much JPM evidence was destroyed by the demolition of Building #7 in the World Trade Center without any aircraft impact, where the big corrupt bank had many offices for data storage. Pure demolition after a widely reported gun battle in the expansion lobby of the building before the plug was pulled. Think sabotage and black hole at the crime scene, a popular mafia deed.

The USGovt officially charged JPMorguen not with fiduciary fraud and securities fraud. The federales charged JPM with failing to put proper controls in place to prevent and detect money laundering, and for not reporting suspicious activity in the Madoff funds to the USGovt, even though it filed a similar report with British authorities. JPMorgan was the primary bank employed by Madoff Securities at the time Madoff was arrested in December 2008. The big bank took in deposits from the Madoff clients and made loans to Madoff in credit extension. One must wonder what JPM believed their loans were for, as in with what collateral or what business activity or what purpose or what verification in the loan process underwriting. When Madoff Securities collapsed, it had a mere $300 million in funds, the rest pilfered. The final funds located were found in JPMorguen accounts.

The real crime, the true violation, committed by Bernard Madoff is more mysterious. He betrayed the Wall Street and London bank lords, as in double cross. The Jackass cannot obtain the skinny after several attempts. As a result, he was a knight to the fortress offered up as sacrifice, but with the publicly stated volume of fraud one third of what it really was. The full fraud volume over $150 billion would have incited deep cries from the public. In the end, again a highly publicized whitewash, at the culmination of the case, the USGovt imposed a $1.7 billion penalty stemming from two felony violations of the Bank Secrecy Act, a federal law that requires banks to alert authorities to suspicious activity. The violation is very minor. Pennies will next be directed to the countless Madoff victims that includes Hall of Fame baseball player Sandy Koufax. The tired saw theme, nobody is going to jail, and no current JPMorgan business will be shut down. The fraud continues. See the Market Watch article (CLICK HERE). The obscure Swiss bank laws should be scrutinized, which prevent lawsuits or prosecution of special designated banks whose owners come from a certain ethnic origin, which was WW2 predator of its own ethnic group.

◄$$$ JPMORGAN TO EXIT FOODSTAMPS, AND OTHER PREPAID CARD BUSINESS. THE BIG BANK DOES NOT TURN SUFFICIENT PROFIT FROM THE SHORT-TERM CARRY, DUE TO PALTRY USTBILL YIELDS. THE SILLY STORY IS THAT JPMORGAN IS EXACTING REVENGE ON THE USGOVT. HECK, NOTE TO THE DIMWITS: THE BIG BANK IS THE USGOVT. THE REAL MESSAGE IS THAT THE USGOVT DOES NOT CARE ABOUT THE POOR IN NEED. THE MORE IMPORTANT MESSAGE IS THAT JPMORGAN MUST NOT EXPECT SHORT-TERM RATES TO RISE ANYTIME SOON. THE ZERO BOUND RATE IS STUCK. THE FOOD STAMPS PROGRAM IS COLLATERAL DAMAGE. $$$

JPMorgan surprised the financial community by announcing its plans to sell or wind down its business of issuing prepaid cards for corporate payrolls and government tax refunds and benefits. The list includes the infamous Electronic Benefits Transfer, better known as Food Stamps. According to the bank, the product offered with cash and USTreasury services to companies and governments had become a headache of risks in operations and regulations. Another method would need to be secured to manage the wholesale welfare program for nearly 50 million Americans. See the Zero Hedge article (CLICK HERE).

My colleague George from Chicago is a sharpie. He shared his alternative viewpoint centered upon inability to win profit from the cash carry trade. JPM made their money being able to sit on significant cash. They earned so little on the cash carry trade though, compared to the cost of operations. Instead, the bank can make money more easily by borrowing money at zero percent. It is not worth the business overhead to go through such bother, just to sit on cash. In the old days, doing so was a good gig. They used to be able to sit on big cash for a period of time, invest it, and be assured of decent profit only in USTreasury Bills, like with overnight funds. Nowadays the profit is near zero, just like the very short-term rate. Years ago when George once worked for ADP in the payroll arm, the firm made a lot of money. They could sit on businesses cash for a day before crediting their employees the next day. Nice tidy profit but no more. The rollover for JPMorgan would typically in the interbank market, probably overnight, or one week time deposits at most. The overnight Fed Funds rate is basically zero, nothing, zippo, which might have exceeded the program overhead cost. Despite cash balances being substantial, the invested funds earned under 10 basis points. Rob Kirby made a sage observation on the matter. The JPMorgan decision to exit the prepaid federal programs means Wall Street does not anticipate the short-term rates to rise in the future. Thus the prospects for this line of short-term cash business are not expected to improve anytime soon.

◄$$$ HALF OF LOANS ISSUED IN 2013 WERE COVENANT LITE. THEIR DEFINITION IS ESSENTIALLY SUBPRIME. WORSE, MOST OF THESE LOW QUALITY LOANS ARE GOING TO REFINANCE EXISTING IMPAIRED LOANS. THE SITUATION IS WORSE THAN BEFORE THE LEHMAN BROTHERS FAILURE, INCREDIBLY AND ASTONISHING. NOTHING RESOLVED, BACK TO THE SAME SUBPRIME POINT BUT ABSENT THE PUBLICITY. $$$

Denial of a bubble in the credit markets is ripe. The existence of bubbles in the credit market has happened all over again. The USFed vigorously denies it. The Wall Street harlots also deny it. The trumpeted story is of recovery. The following chart makes it obvious that the USFed's policy has driven a hunt for yield so excessive as to explode the growth of so-called Covenant Lite loans. This riskiest of loan issuance is at record high levels all over again. Their volume has incredibly exceeded the previous bubble, in terms of percent issued. The badly weakened companies have been led to refinance their zombie-like existence, in the words of Tyler Durden. Of the $644.4 billion loans issued in the credit market universe, $293.35 billion was Covenant Lite. Refer to the definition, a type of loan whereby financing is given with limited restrictions on the debt service capabilities of the borrower. The approved loans are issued to borrowers with less restrictions on collateral, payment terms, and level of income. Covenant Lite rhymes with Subprime. We are going around the same hollow trees once more, nothing fixed, the drunks in the same saloon.

Bear in mind that the great majority of this loan issuance is being used for refinancing of existing troubled loans, not capital expenditure or growth related spending for businesses. This is not for economic expansion, but rather for band aids and patch jobs. Put it in context. The Covenant Lite loan proportion is more than double the amount of the last bubble peak. Record high exposure to these unsupportable rickety credit structures is going to cause big problems very soon. Just like six years ago, the USFed is asleep at the wheel. The whistle blower last time around was Janet Yellen, who is now silent, since taking the Chair post. The same old risky practices have returned in force. Finally, in addition to December being a typically slow month, the Cov-Lite issuance is at its lowest since the mid-summer Taper episode and mild panic. See the Zero Hedge article (CLICK HERE).

◄$$$ A PRESTIGIOUS BANKING GROUP THREATENS LAWSUIT OVER THE DEEPLY DISLIKED VOLCKER RULE. AT ISSUE IS PROPRIETARY TRADING, WHICH MUST BE HALTED AT THE BIG NEW YORK BANKS, SINCE IT OVERLAPS WITH CLIENT ACCOUNTS IN A CONFLICT OF INTEREST. THE MID-SIZED BANKS DO NOT ENGAGE IN THE TYPICAL CASINO CARRY TRADES COMMON TO THE BIGGER BANKS. $$$

The American Bankers Assn is extremely angry over how regulators addressed concerns on the Volcker Rule, and its effect on community banks. The industry trade group is ready to take the offensive. It threatens to take the matter to court. Banks have long been lobbying to reshape or water down the Volcker Rule, the provision intended to deter banks from making risky bets with their own money in conflict with investor portfolios. The intention is to limit conflict of interest with legitimately hedged client accounts, which by nature stand in opposition. But also, the intention is to avoid the need for future bailouts of the financial system, the popular refrain. After much delay, five federal agencies approved the final rules in December. They bolstered some provisions but left other areas open to loopholes. In a formal letter submitted, the association said it would file a lawsuit challenging the rule, unless regulators immediately suspended a provision that could force regional and community banks to divest themselves of an investment in collateralized debt obligations backed by trust preferred securities, known as TruPs.

The treatment of CDOs is fuzzy and murky. Regulators actually tried to accommodate the concerns of the banking industry by issuing guidance that said regional and community banks need not automatically treat so-called TruPS CDO financial contracts as prohibited investments, required to be shed under the Volcker Rule. The regulators  issued the guidance in response to lobbying by the ABA and a decision by Zions Bancorp of Salt Lake City to take a $387 million charge to rid itself of a portfolio of those risky messy ugly CDO toxic items. Guidance issued on December 19th indicated that banks should review the structure of each CDO before determining whether the security was considered a prohibited covered fund under the rule, and thus needed to be sold. See the New York Times article (CLICK HERE).

## THANKS

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, and more.