GOLD INVESTMENT REPORT
PRECIOUS METAL & ENERGY
CURRENCIES & STOCK INDEXES

* Golden Potpourri
* Monetization Reverse Bonanza
* Big BIS Golden Fly in the Ointment
* Europe at Gate of Default
* Chinese Enigma Turns a Corner
* USTreasury Fraud & UK Accomplice
* Gold Stories Lead to Climax
* Gold Price in Holding Pattern


HAT TRICK LETTER
Issue #76
Jim Willie CB, 
“the Golden Jackass”
21 July 2010

"Empires such as the former Soviet Union and the Roman empires can collapse quite quickly. The tipping point is often when the cost of servicing an empire's debt is larger than the cost of its defense budget. That has not been the case I think at any point in US history. It will be the case in the next five years." -- Niall Ferguson (Harvard professor)

"The path of least resistance is a gangplank. Capitalism encourages both productivity and consumption. In its early stages, productivity drives consumption. In its later stages, the opposite is true. In its final stage, the debt produced by each destroys both. Ten years after the bursting of the dot.com bubble, America is still desperately trying to reflate the credit bubble that caused its temporary prosperity." -- Darryl Robert Schoon

"[Bernanke] knows he needs cover for QE2 [huge money printing initiative] and that means some sort of deflationary shock that scares the masses and makes many clamor for help like sad scared little children (we are being conditioned like animals)." -- Jesse (Cafe Americain)

"But I think something ahead of the markets is a likelihood of the Fed stepping on the gas once more, so-called Quantitative Easing. I think that is likely to happen. The Fed is already clearing its throat. You can see this in the newspaper leaks." -- Jim Grant (from Interest Rate Observer)

"Gold and silver are going much higher. The sky is the limit for gold. Governments are losing control of gold. They cheat, steal,lie, maneuver... but gold will beat them and is already doing so, in stages." -- Harry Schultz

"A gold standard and a redeemable currency& enable a people to keep the government and banks in check. It prevents currency expansion from getting ever farther out of bounds until it becomes worthless." -- Walter Spahr (Chairman Dept Economics, New York Univ, 1927-1956, from an age when universities did not teach economic heresy)

"As long as the USFed and EuroCB are stuck at 0%, gold will rise. As long as US and EU banks refuse to liquidate ruined assets, gold will rise. As long as the USGovt obstructs or ignores urgently needed reform, gold will rise. As long as government deficits remain extraordinarily high, gold will rise. As long as the USEconomy cannot be revived, gold will rise. As long as the USDollar sits arrogantly as the global reserve, gold will rise. As long as Goldman Sachs controls the USDept Treasury, gold will rise. Witness the failure of fiat currency and the central bank franchise model." -- the Jackass

"If con is the opposite of pro, is Congress the opposite of Progress?" -- YES

[Editor Note: No price charts will be offered in this report. Ranges are being defended vigorously, with some gold slippage, before the assured strong price breakouts. The previous price charts are still relevant, but with extensions of selfsame except for the Euro short cover and the USDX slide. Gold & silver shortages are growing more acute by the week. The real story is not technical but rather in the gradual inexorable breakdown that leads toward a monumental monetary crisis. Its epicenter will be all currencies and the sovereign debt that reinforces them, not just the USDollar. The tectonic plate that cracks will be gold, where corrupt hands are losing the tight grip. The breakdown and historical monetary crisis is fully covered, without commodity references.]

GOLDEN POTPOURRI

◄$$$ THE GOLDMAN SACHS CIVIL LAWSUIT CASE WAS SETTLED. THE $550 MILLION FINE WAS 35X THE PROFIT IN THE ABACUS FRAUD SALE. NO ADMISSION OF GUILT, NO PLEA OF GUILT, NO FELONY CHARGES FILED. NO BUSINESS UNIT SHUTDOWN. ANOTHER MOTIVE EXISTED TO SETTLE. $$$

Head of the Securities & Exchange Commission Mary Schapiro told a USCongress committee last week that the SEC was eager to settle the nettlesome Goldman Sachs case in order free its own resources up for more cases in the pipeline. Shapiro said the bulk of failed bank events have yet to occur, whose treatment will require their time with FDIC coordination. A $550 million fine was imposed on Goldman Sachs, the biggest ever on a Wall Street firm, Talk about asymmetric returns!! Under the settlement, Goldman paid back the $15 million in profit from the Abacus deal, but also paid a civil penalty of $535 million. Restitution would go to the two banks that suffered losses on the deal, $150 million to IKB Deutsche Industriebank and $100 million to the Royal Bank of Scotland. The remaining $300 million went to the United States Treasury as a fine. The fine, although large, will defuse very little public anger. The public wanted to see far more financial pain, even the humiliation of a public trial with horrible publicity. In 2Q2010 just announced, Goldman Sachs earned a $3.45 billion profit after the fine. That comes to $61.5 million per business day. So the fine cost the syndicate fortress that houses a sprawling vampire squid a mere nine days of profit. Regard it as a noteworthy cost of doing business with no legal consequence, no jail time, no shutdown. But a shun comes.

The Hat Trick Letter has consistently stated that the process of meltdown is very early, as banks have refused to mark down assets, and most big US banks are walking dead. The tip of a quick settlement was given by Chris Whalen of the Instituational Risk Analytics. Hundreds more banks are going down hard. The USGovt deficits will remain over $1 trillion each year for some time. The USTreasury default can almost be a scheduled event. See the Business Insider article (CLICK HERE).

◄$$$ SLOWLY, A EUROPEAN BAN IS STICKING AGAINST WALL STREET FIRMS FOR BOND MARKET ABUSES. THE FRENCH SEEM THE MOST ANGRY IN TAKING ACTION. ISOLATION OF WALL STREET PRECEDES ISOLATION OF AMERICA. $$$

More shun has come to the criminal US investment banks on the global stage. Their movement is limited. European governments are formally ignoring Goldman Sachs in the bond business, as seen by Greece, Spain, France, and Italy, according to Dealogic. These nations have blocked GSax from any lead role in their recent sovereign bond sales, after a string of enriching past deals. The firm settled an important lawsuit in order to avoid a high profile legal trial that would have tarnished their reputation ten times worse. The charge was GSax misrepresented investors in a mortgage bond derivative sale, the Abacus deal. The formerly venerable firm, cast as extreme rogue nowadays, admitted merely that its marketing materials were incomplete, since no mention was made that the third party helped choose the assets in the fund, but had taken a large investment position against them. No crime was charged nor admitted. A truckload of manure was dumped on the GSax lawn, then removed at a cost, but the extreme stench remains. GSax has become more of a pariah in Europe than the United States.

European governments have reacted swiftly and angrily, after unearthing data on past transactions involving Goldman with Greece and Italy. The investment securities which the bank set up to sell, helped to conceal the size of government debt and were arranged with GSax as beneficiary after the debt was downgraded. The Greek Govt is at war with the bank. Spain has cut out GSax as its top bookrunners in 2010, while Italy has cut them out in a leading role since 2007. France has cut out GSax in any lead slot over the past three years, a situation that seems permanent. A person linked to the French Treasury was quoted as saying, "French people would riot in the streets if we chose Goldman." The French Govt has firmed its adversarial position against investment banker bonuses and their practice of making large investments in opposition to the sovereign bonds they work to sell as brokers. The French and Spanish Govts have acted more conservatively, making debt issuance only in Euros, staying away from complex currency swap contracts that came back to bite Greece and Italy. A growing list of European governments strive to simplify their bond deals in order to preserve their cherished AAA rating, which keeps borrowing costs down. See the UK Guardian article (CLICK HERE) and the New York Times article (CLICK HERE). We are very early in the isolation process. Unfortunately, the banning of Wall Street will eventually result in US isolation. Investment banking goes hand in hand with commercial partnerships. This is one more step toward the Third World for the United States.

◄$$$ RUMORS SWIRL OF LONDON METAL EXCHANGE THEFT. THIS COULD BE COVER FOR THE ABSENT PHYSICAL METAL IN THE LONDON L.B.M.A. EXCHANGE. REALITY IS HITTING LONDON, WHICH NEEDS A COVER STORY. $$$

A reliable subscriber from California, with several good sources, reports that the Wall Street Journal might soon be coming out with an important story to the effect that thieves have hit a major UK metals warehouse. The site is most likely London. Certainly, the story would show a link to the London Bullion Metal Assn. One can only guess. So the London bankers could attempt to sidestep responsibility, claim it aint their fault, on how the gold & silver is all gone. This sounds like the argument by the kid at school that the dog ate the homework. Hey, sure, why not?? Expect, if it is published, to be a lame attempt at a cover-up for missing gold & silver metal. The shortage has become so acute since the December assaults by depositors began, that the LBMA must conjure up a story to conceal their empty vaults. Depositors have been removing precious metal in huge volumes, suspicious of fraud, fearful of lost wealth. My view is simple. Either way, admission of NO METAL is a major major step in breaking the corrupt spine of the illicit gold cartel. Any route that leads to broad recognition of NO METAL is fine with me. Let them try to save face. Let them announce the metal fell in an earthquake fault line, or was teleported by Spock to the Starship Enterprise, or was carted off to an alien spaceship in an inter-galactic raid. It will not work. Outright derision is the likely response by the public, after so many chapters of bold naked fraud. The response would be a rise in the gold price from absent supply and growing demand, after a bank run heated up.

◄$$$ OBSTACLES TO GOLD COIN PURCHASES TO BE IMPOSED BY YEAR 2012. TARGETED ARE PURCHASES OF ANYTHING OVER $600 IN PRICE. THE LAW MIGHT BE WIDELY IGNORED. THEN AGAIN, IF EXTREME COIN SHORTAGES COME, THEN THE REGULATORY PAPERWORK WILL NOT MATTER. EXTREME COIN SHORTAGES ARE HERE IN THE MARKETPLACE, RIGHT NOW! $$$

The Numismatic News reports on a storm of paperwork soon to hit the coin collector world. The cartel, with USGovt tail wagging, wishes to obstruct the gold coin movement and its fast growing demand. Passage by Congress of the national Health Care Bill has had side effects. Coin buyers of all stripes (collectors, dealers, estate liquidators) will be required to complete new Internal Revenue Service 1099 forms for coins and other products, as of January 2012. The threshold for filing completed forms begins at $600 for coins or bullion, regardless of payment method, a very low level sure to produce a blizzard of paperwork. See the Numismaster article (CLICK HERE). A tax expert colleague pitched in. He said, "It is all nonsense, and unlikely to be widely followed. The sections of IRS code upon which this is all based, only applies to government workers and Federal contractors. Of course, most people (especially vendors) do not realize this, and the IRS is not exactly going to clarify. So neglect and disobedience are likely to be our saving grace." A wider perception and effect is in progress. The blizzard of forms, regulations, and programs is too much for most people and businesses to tolerate, which are struggling to survive. Most will ignore the USGovt with the view that it is long past out of control.

Andy Schectman is a widely known and respected gold bullion dealer from Miles Franklin, with focus on coins. He warns that the trend in coin purchase demand is powerful and exceedingly one-side, with paltry supply coming forward from sales. In fact, he warns that coins might not be available at all before long. He said, "In years past, we used to do a lot of business with people wanting to sell. Today, virtually no one is selling their coins back to us. In fact, for every 100 transactions we have, maybe one is a seller, the other 99 are buyers. Our largest supplier, who provides over 60% of all bullion to the US market, told me earlier this month they have days without one single buy back. And this is from the largest supplier in the United States."

◄$$$ THE SWISS BANK SYSTEM IS UNDER GREAT DISTRESS. WORD HAS COME OF A NEW SECRETIVE LAW TO LIMIT BULLION AND MONEY EXITING THE COUNTRY. THE NEW LAW HAS NOT BEEN MADE WIDELY KNOWN. $$

A reliable source from the German banking system, with high level associates in Switzerland, informed me that the Swiss Govt has reacted to the massive exodus of bullion from their nation. He wrote, "Just talked with a colleague in Zurich. He mentioned the Swiss recently passed a banking law that allows them at any time to stop the transit of bullion (and perhaps cash) OUT of the country. If instituted, foreigners would just be given certificates, but could not take possession. This legislation was passed in case of 'emergencies' that stress the system." The law is surely buried in bank regulations, kept from the public eye. All attempts to confirm the law with lower level contacts in the Swiss financial sector resulted in no word either way. My trust of the source is unflinching, as his track record is incredible.

◄$$$ A RUSSIAN RING SEEKS INFORMATION ON GOLD. IN TIME GOLD WILL BE MORE RECOGNIZED AS THE ACHILLES HEEL OF THE ANGLO FINANCIAL GAME. SOME USGOVT DISINFORMATION HAS COME FROM THE STORY, A SIGNAL OF ITS EXTREME RISK. MY BELIEF IS THAT THE PRIMARY AND SECONDARY OBJECTS OF THE RUSSIAN PENETRATION WERE GOLD AND GOLD. $$$

Since the Dawson Creek Conference in the Yukon Territory, hosted in August 2005 with some of the world's most prestigious bankers in attendance, excluding those from the United States and England, the global perception of the Anglo gold game has been revealed. The Russian central bank at the time did an abrupt turnaround. After Dawson Creek, the Russian central bank stopped 100% of its gold leasing to the US & UK, upon realization that they had been duped and swindled. The Russians have been engaged in information gathering ever since, as espionage has entered the gold world. Gold is located at the nexus of the global monetary system vulnerability, with the USDollar as its nucleus. The developing story apparently involves various Russians, some of whom might be operating under Irish names. A trade of US agents for arrested Russian agents defused the situation, in full public spotlight.

The US-based news sources claim the Russian spies are Goldbugs who plotted to destroy the USDollar. They are more likely agents to produce a sound monetary system, fighting the US & UK bank cartel. In telling the story, the Anglo sources will attempt to paint a picture where blame for a USDollar demise is the fault of foreigners. The US$ will fail on its own merits. Past failures and bond fraud are apparently overlooked, as is IMF arm twisting. What seems obvious is that the Russian Govt comprehends that information on Gold, the USDollar and USTreasurys is of high state value. The story tells a biased account on how Russia is gearing up on a conceived plot to destroy the USDollar by instituting a new global currency backed by gold. True enough, as the fight for survival requires a solid monetary foundation, and the global system constructed atop the USDollar is in failure mode. A viable replacement is urgently needed. People who own gold or seek out insider data on gold are deemed enemies of the US state.

The spun news story alleges that the Russian spies were focused upon the CIA leadership, the Obama Admin, and activity in Afghanistan. Jim Rickards, senior director for market intelligence at Omnis, mentions how the FBI complaint cites the global gold market as one of the key objects of interest of the Russian Federation and its SVR intelligence agency. Rickards said, "On a number of occasions, the SVR specifically indicated that information collected and conveyed by the New Jersey conspirators was especially valuable. Thus, for example, during the summer and fall of 2009, Cynthia Murphy, the defendant, using contacts she had met in New York, conveyed a number of reports to [Moscow] Center about prospects for the global gold market."

The news story claims that in late 2009, the Kremlin dramatically reversed its official stance on gold and actions thereupon. Before October 2009, Russia had been on course to sell nearly 25 tonnes of gold into the market. In November 2009, however, one month after Murphy's alleged report to the SVR about gold, Russia started stockpiling the precious metal, selling nothing out of country. In November 2009, Russia's central bank bought more than $1 billion of gold from the foreign exchange market in order to better control the price of the ruble, according to central bank deputy chairman Alexey Ulyukayev. The credit crisis was in full swing. Analysts on contrary ground argue that Russia's move into gold was a manifestation of deep USDollar disappointment, and disrespect for USFed Chairman Bernanke. Anger and disgust would seem normal, to show reaction and disdain for a US$ central banker who minimizes the stated risk of currency debasement via a printing press operated at a boasted zero cost, and who expanded the US$ money supply by leaps & bounds for the benefit of Wall Street redemption of worthless bonds. Russia might have simply followed in the Chinese footsteps, which in 2005 halted all export of gold bullion products. The two Asian nations are working very closely on major energy projects, and consult freely. The Russian central bank continues to purchase gold, adding 26.6 tonnes in the most recent quarter, bringing its holdings to over 668 tonnes. That is a paltry total for any major nation. Other central banks of several countries have been avidly accumulating the precious metal, including China, Venezuela, and India. The nation of India alone purchased 200 tonnes of gold in November 2009, with IMF blessing, without any criticism of trying to wreck the USDollar regime. Any gesture made outside the Anglo War Room, the helm of control, is deemed divisive and subversive.

◄$$$ GOLD HAS BEEN ELEVATED IN IMPORTANCE AND PRESTIGE AS A CONSEQUENCE OF THE RUSSIAN SPY RING INCIDENT. GOLD CAN BRING DOWN A FINANCIAL SYSTEM. IN PAST WORK, RICKARDS OUTLINED A CURRENCY WAR SCENARIO THAT THREATENS THE USDOLLAR, WITH GOLD HOLDING THE POTENTIAL. MY GUESS IS THAT HE ANTICIPATES SUCH AN ATTACK, A CLIMAX EVENT TO THE COMPETING CURRENCY WARS. $$$

Central banks must pay as much attention to the gold market as they do their own bond markets. Gold, after all, serves as collateral to the central banks and their monetary system, based entirely on faith. Central bankers have done much to destroy that faith. They have been on a reckless course for almost twenty years in removing their gold collateral, a strong signal of bankrupt leadership in the mental chambers. Consultant Rickards wrote an important white paper entitled "Economics & Financial Attacks" which created an imaginary Pentagon war game in which Russia used its gold reserves to create a new global currency and destroy the value of the USDollar. In the May 2009 paper, Rickards suggested that US intelligence agencies would do well to track the gold reserves of other countries as a precaution. This story reports on a watershed event. Gold is a great investment in credit crisis times marred by monetary tumult. Survival is not a subversive endeavor. The risk and travesty of unchecked USDollar printing, the redemption of failed bonds, the placement of banker bonuses despite failure, and the adoption of fraudulent firms are the more relevant acute subsersive activities, all sponsored from within by the USGovt and USFed. Their mission is to preserve the power of the elite bankers, to prevent disclosure of gigantic fraud accompanied by prosecution, and to avoid asset liquidation that would bankrupt their masters. See the Information Liberation article (CLICK HERE) or the GoldSeek article by the Gold Anti-Trust Action committee (CLICK HERE) or the Alphaville article (CLICK HERE).

Rickards explains the threat, not of a collapse but extreme undermine of the USDollar via a significant devaluation. The financial attack could be rendered via gold. Russia could be the party in opposition, although much more likely the adversary would be a consortium of nations that includes Russia. Take for instance the advocates of the New Nordic Euro and those nations that support its usage in banking and commerce. He described the rough cuts to the financial attack on the USDollar. He wrote, "Worse even than the long slow grind along the bottom is a sudden catastrophic collapse. In that context, the greatest threat to US national security is the destruction of the USDollar as an international medium of exchange. By destruction we do not mean total elimination, but rather a devaluation of 50% or more versus broad based indices of purchasing power for goods, services, and commodities, and the dollar's displacement globally by a more widely accepted medium. The intention of the Central Bank of Russia would be to cause a 50% overnight devaluation of the USDollar, and to displace the USDollar as the leading global reserve currency. The expected market value of gold resulting from this exchange offer is $4000 per ounce, i.e. the market clearing price for gold as money on a one-for-one basis. Russia could begin buying gold at the market [price] (perhaps $1000 per ounce initially). However, over time its persistent buying would push gold as money to the clearing price of $4000 per ounce. However, gold selling would stop long before Russia was out of cash, as market participants came to realize that they preferred holding gold at the new higher dollar denominated level. Gold will actually be constant [relative to crude oil,] as in one ounce = 25 barrels of oil. It is the dollar that depreciates. Another important concept is the idea of setting the global price by using the marginal price. Russia does not have to buy all the gold in the world. It just has to buy the marginal ounce and credibly stand ready to buy more. At that point, all of the gold in the world will reprice automatically to the level offered by the highest bidder, i.e. Russia. Basically, the mechanism is to switch the numeraire from dollars to gold. Then things start to look different, and the dollar looks like just another repudiated currency as happened in Weimar and Zimbabwe. Russia's paper losses on its dollar securities are more than compensated for by (a) getting paid in gold for its oil, (b) the increase in the value of its gold holdings (in dollars), and (c) watching the dollar collapse worldwide." The above is a highly credible and possible scenario. Rickards paints a scenario with extreme realism, a prescient piece. See the Unrestricted Warfare Symposium website article for the original essay (CLICK HERE) and the Cafe Americain article (CLICK HERE). Regard such an attack as a climax event in the Competing Currency Wars, whereby the unjust unworthy corrupted USDollar is de-throned.

◄$$$ A NEW UNITED NATIONS REPORT CALLS FOR ABANDONING THE USDOLLAR AS THE MAIN GLOBAL RESERVE CURRENCY, SAYING IT HAS BEEN UNABLE TO SAFEGUARD VALUE. PRACTICALITY OPPOSES USGOVT. $$$

Certain European officials attending a high level meeting of the United Nations Economic & Social Council have made a firm stand, defending a position that the financial marketplace, not politicians, should determine what currencies countries would keep on hand for reserves. Value must be determined by equilibrium in a free process, not decree. The UN World Economic & Social Survey 2010 wrote, "The dollar has proved not to be a stable store of value, which is a requisite for a stable reserve currency. Motivated in part by needs for self-insurance against volatility in commodity markets and capital flows, many developing countries accumulated vast amounts of such US$ reserves during the 2000s... A new global reserve system could be created, one that no longer relies on the United States dollar as the single major reserve currency. [A new reserve system] must not be based on a single currency or even multiple national currencies but instead, should permit the emission of international liquidity (such as SDRs) to create a more stable global financial system. Such emissions of international liquidity could also underpin the financing of investment in long-term sustainable development." The report stated that developing countries have been harmed by the USDollar's loss of value in recent years. The report supports replacing the USDollar as global reserve currency with the Intl Monetary Fund's special drawing rights (SDRs), an international reserve asset that is used as a unit of payment on IMF loans. It consists of a basket of major currencies.

The tug & pull from both the great need and ensuing debate is broad based. Jomo Kwame Sundaram is a Malaysian economist and the UN assistant secretary general for economic development. He told a news conference that "There is going to be resistance [to any plan]. In the whole post-war period, we have essentially had a dollar based system." He is of the opinion that the gradual usage of SDRs could serve an important role for countries to phase out the USDollar. Nobel Prize economist Joseph Stiglitz previously chaired a UN expert commission that evaluated proposed solutions toward the overhaul of the global financial system. He has recommended the creation of a new reserve currency system, with possible support for the SDR vehicle. Russia and China have also supported the SDR concept. My view is that the SDR can adequately serve as a Straw Man, a basket vehicle fashioned of the same discredited currencies, for the unexpressed purpose of enabling certain distinct steps away from the USDollar. Once the USDollar has lost its leadership role, and the collection of fiat currencies are tethered and controlled with fixed exchange rates, or in a narrow band, then the collection can be discarded more easily in favor of a new global currency backed by gold. Some doubt lingers among the UN brain trust, hardly a formidable body of mental talent on the subject, since the United Nations has transitioned into an angry backwater of numerous small nations. Some criticize the UN as operating with more African nations that the rest of the world combined. What is most important is the debate momentum.

Paavo Vayrynen is the Foreign Trade & Development Minister from Finland. He said, "[It is probably not possible] to make any political or administrative decisions how to formulate the currency system in the world. It is based on the markets. I believe that the economic players in the market are going to have the decisive influence on that issue." The European Union development commissioner Andris Piebalgs believes it a bad idea to attempt to dictate what the reserve currency should be. He said, "It is markets that decide. Any intervention would just create additional challenges and make things even less predictable. These men are more idealistic, and seem to minimize extraordinary US & UK pressure to preserve their global banking power held for two generations. See the Reuters article (CLICK HERE).

The challenges require far more political clout and banking stature than anything coming from the United Nations. It will take major global powers working together, unfortunately without the dismissive and dictatorial tendencies from any Anglo participation.

Recall the Jackass Axiom: The first nations that abandon the USDollar will emerge as the new leaders in the next monetary chapter in the modern age, while those who refuse to the end will face total ruin.

Recall the Sound Money Axiom: No paper currency, or derivation of paper currencies, can displace a paper currency (such as the USDollar) used for the purpose of global reserve.

◄$$$ UNRESOLVED DEBT WILL KILL THE USDOLLAR. WHILE HOME EQUITY HAS COLLAPSED, THE MORTGAGE DEBT PORTFOLIOS (MORTGAGE BONDS AND BANK-HELD LOANS) HAVE NOT. GREAT SINKHOLES EXIST IN BANK BALANCE SHEETS. MORE DEBT MONETIZATION COMES, OR MUCH MORE BANK FAILURES COME SINCE INSOLVENCY IS HUGE AND WORSENING. $$$

Consider some basic financial data points. Between spring 2006 and spring 2010, the total value of American homes declined by roughly $7 trillion, from $20 trillion to $13 trillion. During the same timespan, mortgage debt on the same stock of US homes fell by only $270 billion, from $11.95 trillion to $11.68 trillion. The lending institutions have not kept pace with equity decline by a 26:1 factor. If 70 million homeowners exist in America, then on average they each have lost $100 thousand in home value. Simple math.

The housing debt must be resolved, and the gap narrowed. Resistance by the bankers continues in credit asset writedowns. They live in a fantasy land marred by hidden sinkholes sure to be felt, and soon. Home values continue their descent in value. The gap widens. Households have encountered reality, but the banks refuse that same reality. Widespread bank failures are due, but resisted. The banks are largely insolvent, the true reason why lending volume is down hard. The USFed under Bernanke has monetized only $1.5 trillion dollars to date. Another $5.5 trillion more monetization to go. Even European banks remain vulnerable to similar sinkholes, since they hold a raft of US$-based bonds of all stripes. See the Cafe Americain article (CLICK HERE). My forecast three years ago was for at least $2 to $4 trillion in bank losses to be realized. At the time it earned both compliments and derision. It is coming.

MONETIZATION REVERSE BONANZA

◄$$$ GOLD PERFORMS WELL DURING TIMES OF BOTH INFLATION AND DEFLATION. IN TIMES OF EXPANSION, THE PRICE INFLATION FACTOR IS STRONG TO PUSH UP THE GOLD PRICE. IN TIMES OF DEBT CRISES, THE ASSET PRESERVATION FACTOR IS STRONG TO PUSH UP THE GOLD PRICE. MORE IMPORTANTLY, WHEN ULTRA-LOW INTEREST RATES PREVAIL, ESPECIALLY IN THE ZERO PERCENT CLIMATE, GOLD THRIVES. $$$

If the zero percent climate does not change, the gold price will explode, as a hyper-inflation threat threatens to hit. A paradox is at work. Gold performs very well in both times of monetary inflation and monetary deflation. The money supply grows briskly in good times, and faster in bad times, due to heavy stimulus and rescues of failed firms. Gold tends to increase in price in times of monetary inflation, because it serves as an excellent hedge from central bank debasement of the currency, and its scourge effect in price inflation. Governments print money recklessly, always have, and always will, with the climax in progress in these current months, as the recklessness has turns psychotic. The banking leaders have broken from reality, unable to witness the capital destruction like wrecked industry, denying its pervasive effect, from resorting to failed policies repeatedly. Redeeming failure is not even a tenet plank of capitalism, a path the United States has long departed from.

Gold tends to perform well when price inflation is mild, when long-term bond yields are tame, when the perceived risk levels are low. Price inflation is the constant feature, thus so is gold price rise. When economies falter, recession is entered or dabbled with, a powerful phenomenon remains at work. The true price inflation rate usually continues to exceed the long-term bond yield offered to savers to hand over funds with trust. Hence, the real return on savings tends to remain negative. That enables gold demand not only to rise, but to start the process like in 2002. The monetary cycle has been established as clear. Deflation, in terms of falling asset prices amidst economic recession, is a prelude to monetary inflation, which itself often results in strong episodes of high price inflation. In the current situation, the risk of at least brief hyper-inflation is acute. The fiat currency regime is failing before our eyes, and desperate actions to save it have put price inflation as an extreme risk in outcome. The systemic failure is most visible in the 0% interest rate, a stuck situation with no policy alternatives, NONE!! Gold is thus stuck going up!!

The aspect of gold demand that eludes the mainstream consistently, month after month, is its basis in expectation of a monetary event, even a big historical monetary event. As the event unfolds further, like with breakdown in the US & UK & EU banking systems, then the breakdown in sovereign debt, and recently the breakdown in monetary discipline as seen in powerful Quantitative Easing (money production), gold demand soars. Also, on sheer competitive grounds, gold shines by comparison to the multitudes of tarnished unworthy assets that attempt to attract investment funds. Take mortgage bonds, hard property assets, stock equity, municipal bonds, and lately the government bonds. They stink on ice, as gold shines brightly. See the Cafe Americain article (CLICK HERE).

◄$$$ JIM RICKARDS EXPLAINS SIMPLY THE COINCIDENT CONDITION OF INFLATION & DEFLATION BOTH EXISTING. MUCH CONFUSION HAS COME TO THIS DEBATE. MUCH CONFUSION IS DESIRED ON THIS ISSUE IN ORDER TO OBFUSCATE THE MAMMOTH MONETARY INFLATION BY THE USGOVT AND USFED. ONE DOES NOT EXIST WITHOUT THE OTHER, AS BOTH INFLATION AND DEFLATION CO-EXIST. THEY WRECK HAVOC IN DIFFERENT SECTORS IN A ROLLING SEQUENCE OF DESTRUCTION. $$$

Jim Rickards of Omnis wrote, "Both China and the United States had massive misallocations of capital for different reasons. In China it was central planning... In the United States we have misallocation of capital because of the Fed's interest rate policy. Too low for too long, going all the way back to 2002... We have massive inflation here and now, and we have massive deflation here and now. And these forces are [hardly] canceling each other out. So the indices appear well behaved, but beneath the surface this is not price stability. This is a highly unstable situation... For example, take commercial real estate. Wilbur Ross is very involved in that. The bid offer on a lot of this stuff in the community banks is 30 points [i.e. 30 cents per dollar]. You know, the offer is 80 and the bid is 50, and there is scarcely a market. So if the price is up here and it should be down here, that is a kind of hidden inflation. The Fed is not allowing healthy deflation to happen, and that is a kind of inflation." Read that quote at the end a couple times for its effect. The USFed is not permitting impaired assets to clear in their markets at proper prices. That in effect keeps perceived prices higher than true value, which he carelessly calls inflationary. The usage of the words inflation and inflationary are a travesty. The forcible lift in perceived prices is a disruptive influence on price setting, as in exaggerated prices set, which is not inflation at all. He describes a ruined market, not price inflation.

◄$$$ JIM GRANT EXPECTS ANOTHER POWERFUL ROUND OF MONETARY EASING. HE IS CONFIDENT OF QE2.0 RIGHT AROUND THE CORNER. AMBROSE SECONDS THE OPINION. ROYAL BANK OF SCOTLAND WARNS OF UPCOMING MONSTER MONEY PRINTING BY THE USFED. THE CHORUS BUILDS. $$$

Jim Grant joins the chorus of wise men within the financial industry who anticipate a continued extravaganza of monetary printing, another iteration of QE. They see how the temporary lull in extreme monetary inflation and the economic stall leave the USFed only one choice, more Quantitative Easing. The first round involved $2.5 trillion. Ambrose Evans-Pritchard expects the next round to be coordinated $5 trillion global initiative. Vast monetization of debt and sustained stimulus & rescue are the only option left to central bankers. Their franchise model has failed. Endless crutch support is their constant refrain, their glory epitaph. Ambrose expects the doubling in the gold price the second QE2 is publicly announced. It will rise as demand explodes, but the criminal paper gold machinations will ramp up also, maybe redouble. The indomitable Grant remains highly critical of Janet Yellen, Steve Diamond, and Sarah Bloom Raskin, as he ridicules the USFed's 100% track record of not only focusing on the wrong thing time after time, but getting the response consistently wrong with 100% precision. Ouch!! On the three board members, Grant mocks their voting record and fine credentials with monetary theory hobbies, not dedication. Ouch!!

Grant wrote, "Deflation is a funny thing. It is a word that is much in the news, much in the markets, but is all too infrequently to find... So in 2002 and 2003, Alan Greenspan, then chairman, and Ben Bernanke, then a newly fledged governor, were out giving speeches saying that deflation is a clear and present danger. At the Fed, we must cut rates dramatically, which they did to 1%. But the price indices today are much weaker than they were in 2003. So where is the Fed? Why not broach the topic of deflation again? So what I blame the Fed for, among other things, is a lack of intellectual rigor and forthrightness." Ouch!!

Evans-Pritchard wrote, "We are much nearer the tipping point today. The M3 money supply has contracted by 5.5% over the last year, and the pace is accelerating... There is no doubt that the Fed has the tools to stop this. 'Sufficient injections of money will ultimately always reverse a deflation,' said Bernanke. The question is whether he can muster support for such action in the face of massive popular disgust, a Republican Fronde in Congress, and resistance from the liquidationists at the Kansas, Philadelphia, and Richmond Feds. If he cannot, we are in grave trouble." Colleague Craig McC from Northern California pitched in, saying "The Fed is going to print print print. Yellen's appointment as Vice-Chairman assures it. Dissenting Fed Governors will be forced out." See the UK Telegraph article (CLICK HERE).

◄$$$ FIAT MONEY ENABLES THE UNITED STATES TO EMBEZZLE THE WEALTH OF NATIONS THAT RUN SURPLUS ECONOMIES. SOME CALL IT HIDDEN CONFISCATION DOMESTICALLY, BUT IT HAS A HIDDEN GLOBAL FUNCTION AS WELL. EMERGING ECONOMIES WITH SURPLUS ACCOUNTS INVEST IN FOREIGN BONDS BASED IN FIAT CURRENCY. CHINA AND OTHER NATIONS ARE RECOGNIZING THE GREAT SWINDLE. $$$

The primary architects of the current fiat monetary system are slowly being discredited, Nobel Prizes or not. Milton Friedman promoted the theory of floating exchange rates, on which the international monetary system has been based since 1971. But heavy handed control of those exchange rates enables a nasty bully regime to operate freely. Simply stated, the floating exchange rate system advocated by leading prestigious economist has permitted a scheme to embezzle the surplus balances of emerging economies that have successfully embarked on an industrial path. In the past, any formal effort to preserve a currency has been met with hostility by the Anglo institutions of the World Bank and the Intl Monetary Fund. The label of 'Currency Manipulator' has led to harsh retaliation like trade sanctions, even continual fear by the smaller nations. Foreign nations are discouraged from reducing their currency values that would win an export advantage. They are enticed into a slow moving trap of currency rise from their own economic success. A coercive regime has resulted, claims Antal Fekete, economics professor in the Canadian Maritime provinces. Any currency rise to a producing nation results in a US$ decline, and thus a decline in their US$-based reserve asset holdings. From their own progress, the consequent upward currency revaluation forces a US debt writedown without agreement or accord. Thus the embezzlement, he argues. They are in essence victims to the US Ponzi system, realized when the USDollar devalues.

Fekete wrote, "[The regime] is designed to protect the scheme whereby the dollar balances of the surplus countries are stealthily embezzled. It works as follows. The United States lures the unsuspecting surplus country into the Black Hole of currency revaluation against the dollar. As their currencies are floating upwards, a part of the surplus country dollar balances is appropriated by the United States. In effect, the US is forcing its trading partners running a surplus to grant, unwittingly, a partial debt abatement. This exhausts the concept of embezzlement. The US, bankers to the world, conspires to short change its depositors using the smokescreen of floating foreign exchange. This regime, based on plunder, cannot endure. The only equitable monetary system is the one based on fixed exchange rates. And the only durable way to fix exchange rates is to make the currency redeemable in gold. Friedman's theory is a blot on science and on the good faith of the United States in its dealings with its neighbors."

A nice summary indictment of accepted Keynesian principles was written by financial analyst Moses Kim. He wrote, "The flight to safety is a reflection of the growing realization that a broad based debt repudiation is coming. This should not be a surprise, as sovereign nations never repay their debts. We are getting a history lesson in real time, but most people have no clue. We have already tried the Keynesian elixir of debt financed stimulus to no avail. The global economy is clearly starting to roll over, as Keynesians scratch their head in confusion. We can stimulate all we want, but it will have no effect. Unfortunately, another round of stimulus is most likely coming. Take this as a sign of desperation. Our genius leaders will never figure it out: we need to revalue, and we will revalue."

BIG B.I.S. GOLDEN FLY IN THE OINTMENT

◄$$$ THE BANK FOR INTL SETTLEMENTS SUPPOSEDLY LEASED HUGE AMOUNTS OF GOLD BULLION TO BULLION BANKS CAUGHT SHORT, AS WELL AS CENTRAL BANKS, MAYBE EVEN TO METALS EXCHANGES. A DIRE SITUATION IS PAINTED FOR THE GOLD BANKS. EVERYTHING IS ON THE EXTREME EDGE, AS DEFAULTS ARE NEAR. $$$

The Gold Anti-Trust Action committee often publicizes the admission made by the BIS official William White at an internal Basel conference in June 2005. Among the five objectives of central bank cooperation, in the words of White is, "the provision of international credits and joint efforts to influence asset prices (especially gold and foreign exchange) in circumstances where this might be thought useful." The BIS policy is plain, in suppressing the gold price, despite owning a significant hoard themselves. The policy reads, "The gold has not entered the open market, ... [but] if the banks that loaned the gold are for some reason unable to make good on the loan, the BIS could opt to sell the gold in order to get its money back, which could amount to flooding the market with an unexpected boost to the global supply." Check the speech (CLICK HERE). A run on European commercial banks is in progress, for their gold, and the BIS is the last line of defense before outright default.

The BIS extended massive loans valued at $14 billion backed by gold to commercial banks in recent months, in exchange for foreign currencies, mainly USDollars. The magnificent volume of the recent swaps, involving 349 metric tonnes of gold, reflected the great stress that the international banking system is under, a symptom of the ruinous situation with sovereign debt. The sheer volume aroused great suspicion, since gold bullion had to surface from vast hidden supply locations. The Wall Street Journal wrote, "The enormous amount of gold involved, nearly tripling what the BIS itself owns, left many market participants wondering about the nature of the deals. The BIS declined to identify the commercial banks involved. The BIS report indicated that all its outstanding Gold Swaps are set to expire in less than one year, when the borrowers are obliged to repay the loans and repurchase the gold. The swaps are backed by gold held at central banks... Through an arrangement called Gold Swap, financial institutions exchange gold with the BIS in return for cash, agreeing to buy back the gold at a later date. The practical implications for the gold market are limited, because the gold has not entered the open market. By contrast, the BIS reported that it had no Gold Swaps outstanding at the end of the prior fiscal year. Gold Swaps have rarely been used at the BIS in recent years, largely because capital was often readily available in the marketplace. It is not clear what prompted the banks to borrow from the BIS instead of their central banks." The January timing of the transactions coincides with a fever that gripped European banks over Greek Govt debt. See the Wall Street Journal article (CLICK HERE). The situation describes a bank run for their gold, many types of banks.

◄ A HUGE AMOUNT OF GOLD SWAPS WERE CONDUCTED BY THE B.I.S. TO BAIL OUT PRIVATE BULLION BANKS. ORGANIZED LOOTING OF SOVEREIGN WEALTH IS THE OUTCOME, AS OFTEN PUBLICLY OWNED GOLD IS ROUTED TO PRIVATE WEALTHY HANDS, IN EXCHANGE FOR PAPER MONEY. $$$

A huge volume of Gold Swap contracts is being used to bail out private bullion banks. Clearly, an event was averted, either a default by the banks or exposure of corrupt leasing improperly of allocated accounts. The public sale of gold by the IMF could have been intertwined, which has been secretive and selective. It might not have been a legitimate sale to raise funds, but a means of bailing out the bullion banks. Their gold could have been previously on lease and sold into the public markets. Due to tightness of supply in the physical bullion market, increasingly disconnected from the NY-based paper market, great shortages appear to have occurred. Several private bullion buyers, including Eric Sprott, have recent experiences with the corrupted IMF. The Sprott attractively priced offers in clear terms to buy large tranches of gold from the IMF were turned away as 'ineligible' supposedly. The IMF sells at the lower prices ex-market to selective 'club' members. It appears that they, and certain European central banks, are possibly managing this through BIS.

Harken back to when Gordon Brown sold England's gold at artificially low prices to bail out the bullion banks in New York and London, or more accurately DeutscheBank. The IMF plays a key role, as its constituent members sell the public vaults replete with gold, to a 'club' of developed western nations. The incestuous private supra-national transactions aid, abet, and conduct crony capitalist banking fraud that involves the secretive sale of publicly owned gold assets at artificially low prices for the benefit of a handful of state sponsored syndicate banks. The BIS arranged sale of gold smells to high heaven and reveals a 'Smoking Gun' for the central banks.

◄$$$ THE BIG B.I.S. GOLD SWAP HAS BEEN AVERTING A DEFAULT OR SOME OTHER HORRIBLE EVENT. THE TRIPWIRE EVENT IS A MOVE TO $1300 IN THE GOLD PRICE. THE CREDIBILITY AND FAITH IN THE USFED HAS SLOWLY VANISHED. BEWARE OF GRESHAM'S LAW, WHERE BAD MONEY PUSHES OUT GOOD MONEY. $$$

Gold investor and respected analyst John Brimelow reported, "The news of the day, of course, was the discovery by the Virtual Metals analyst (Matthew Turner) that the BIS engaged in what appears to have been the biggest Gold Swap in history prior to the end of their fiscal yearend on March 31st." The Bullion Desk broke the story. They reported, "In its 2010 annual report, the BIS said that 'Gold, which the bank held in connection with Gold Swap operations, under which the bank exchanges currencies for physical gold,' stands at 8160.1 million in Special Drawing Rights [basket currency], equivalent to 346 tonnes this year, up from nil in 2009. While the data is relevant to the end of BIS 2010 financial year in March, data posted to the Intl Monetary Fund and carried by Bloomberg show the swap still growing in April, analyst Andy Smith of Bache Commodities noted. To now, this implies a swap of about 380 tonnes from the end of 2009, he said in a report."

The New Washington Agreement permits signatories to engage in gold derivative transactions for the first time in a decade, thus opening the door to abuse. The accord went into effect at the end of last September. This in effect means the end of central bank gold selling restraint, at a time when several member banks are in desperate condition. Governments continue to provide political cover to support the banks for the good of the people, from whom they have ransacked billion$ in gold for the benefit of the elite. The timing of the IMF and BIS actions to engage in a high volume set of Gold Swaps at this particular time testifies to the gold price pressures, but also hidden pressures of a bank run. The price has threatened to breach the $1250 mark convincingly several times. At the same time, other physical pressures have built. According to the COMEX daily data, an extraordinary number of contracts have been standing ready for delivery in silver & gold. Internal experts believe a powerful rally would have demanded almost two million ounces of gold to be transferred out of the COMEX, a call on their 2.64 million ounces of dealer supply. Such a run could have broken the bank and caused a crisis with full publicity. Volcker and Greenspan have warned on numerous occasions that the central banks stand ready to sell gold into the market to prevent its price from rising, an event which would ruin financial market confidence, and undermine the ability of the central banks to manage their currency markets.

Fear, distrust, and disrespect have entered the marbled buildings operated by central banks. The worst fears of the US Federal Reserve are coming true. As the central bank franchise system has failed before our eyes, the recognition of its failure is slowly creeping into the public consciousness, and its corruption is observed more plainly. The collusion with Wall Street, obstruction of disclosure, and refusal to permit independent audits have had an abrasive if not corrosive effect. The people of the United States are fast losing confidence in the USFed and USDept Treasury for reckless policy and wretched management of the banking crisis. Beware of Gresham's Law, a hallmark marquee quotation on the Golden Jackass website. Bad money drives out good money. In other words, gold will be tucked away, sequestered, hidden, kept out of reach, as tainted, phony, corrupted money takes over in wide circulation, wide investment, wide trading, and most importantly widely held bank reserves. See the USDollar and the USTreasury Bond, even the USAgency Mortgage Bond backed by the USDept Treasury. The global reserve currency is contaminated by a gigantic bond bubble in USTreasurys. The Gresham effect is at work in climax style here and now!! Its next manifestation is a monetary crisis with USDollar epicenter, and hyper-inflation. See the Cafe Americain article (CLICK HERE).

◄$$$ THE BIG B.I.S. GOLD SWAP CONTRACTS WERE PROBABLY DESIGNED TO BAIL OUT A MAJOR BULLION BANK ON THE VERGE OF A HIGH PROFILE DEFAULT EVENT. JULIAN PHILLIPS REVEALS A LIE, AS NO PRIVATE BANK HAS THE STATED VOLUME OF GOLD. THINK SEVERAL PRIVATE BANKS, AND AT LEAST ONE SMALLER CENTRAL BANK. $$$

The story actually shifted. What began as a Wall Street Journal story was updated and corrected. An emailed statement from the BIS clarified that the Gold Swap contracts were with commercial banks, not central banks as was first reported. Adrian Douglas of GATA added his viewpoint. He said, "As always, news of anything to do with the gold market is cloaked in secrecy, misinformation, and innuendo. What we can be sure of is that the BIS news is gold friendly. Why? Because the BIS was intending to keep the matter secret. The BIS Gold Swaps were not announced but instead 'discovered' by an analyst snooping around the BIS accounts. Similarly the International Monetary Fund has been quietly selling gold each month since February, even though for years every possibility of a gold sale by the IMF was announced [a great  many times.]"

Julian Phillips adds his viewpoint. He said, "Gold Swaps are usually undertaken when the cash taking central bank may want foreign exchange but does not wish to sell outright its gold holdings. The Wall Street Journal informs us that the Bank For International Settlements did these swaps with commercial banks. We know of no commercial bank that has 382 tonnes of gold on their books. It is likely then that should these commercial banks have been in the deal, they would have been acting for a central bank [or several over time] who wished to remain anonymous." Phillips reveals the lie. It was a central bank in trouble, or a group of private banks, and at least one smaller central bank!!

One can easily interpret the sequence to reveal three important facts:

  • central banks are short on gold bullion
  • central banks are unwilling to give up what they have as a core hoard
  • central banks can no longer provide critical assistance to the struggling bullion banks.

◄$$$ PORTUGAL MIGHT BE UNDER GREAT DISTRESS AS THE NEXT P.I.G.S. NATION TO TOPPLE. THE B.I.S. GOLD SWAP COINCIDENTALLY HAPPENS TO BE OF THE SAME SIZE AS THE PORTUGAL CENTRAL BANK GOLD HOLDINGS. THE BIG GOLD SWAP MEANS EUROPE IS IN DEEP TROUBLE AGAIN, FROM A BANK RESERVES STANDPOINT. $$$

Mike Kosares of USAGold puts the pieces of the puzzle together with adept skill. He manages the Centennial Precious Metals in Denver and hosts its Internet forum. Kosares concludes that the BIS Gold Swap contracts signify a threat to Europe and its sovereign debt, and not to gold. This is not complicated, unworthy of Sherlock Holmes detection and deductive powers. Much is right out in the open. Coincidentally, Portugal was listed as having 382 tonnes of gold in reserve in its central bank vaults. A tad of confusion has arisen since some reports cite 349 tonnes being the size of the BIS Gold Swap contracts. Yet amount of gold inventoried by the BIS recently for a swap deal was 380 tonnes. Kosares calls a spade a spade. He described the swap agreement merely as a sophisticated version of a pawn ticket. The owner of the property leaves the valuable item with the pawnbroker, in this case a very expensive piece of bank jewelry, a bullion bar. The pawnbroker offers cash in exchange, against the item's perceived value, except only a tiny discount is suffered by the owner, not the pawnbroker's typical 30%. If and when the owner fails to reclaim the property with full payment on the amount owed, the item changes ownership in a transfer to the pawnbroker. In the case of the BIS, the gold was left with the pawnbroker for cash in Euros. The nation of Portugal is probably involved in a direct deal to the BIS, which then leased gold to numerous private bullion banks, maybe even some smaller central banks, in complex three-way deals. Portugal probably is not the party pawning the national jewels at the BIS, even some have suggested as such. The cobbling gradually of 380 tonnes from smaller gold deals with commercial banks around Europe might be smokescreen cover, easily made from of the financial crisis. However, Portugal has been identified as the next European nations in deep financial trouble. Actually it is a race between Portugal and Spain for the next crisis news focus of attention, the disaster of the month.

Whether it is Portugal, or some big private bullion bank (more likely) in dire straits, on the verge of default, the point is that gold is at the center of a potential default event. The big need, or set of collective needs, came from somewhere in Europe, from a bank of some sort. On the other side is the BIS, which issued the Gold Swap contract, not for its health, not from altruism, but in direct response to a great perceived need. The BIS wishes to preserve the fiat currency system, broken bones and all, twisted tendons and all, deformity and all. Some central banks and bullion banks pawned their gold, having exhausted their choices and options. Kosares reminds that neither Portugal nor Greece is permitted to print money. The funds raised through the Gold Swap contract could not go directly to the federal government or to reinforce the bond market. The overwhelming odds are that funds went to bail out some major commercial banks, thus preventing a sequence of counter-party meltdowns and gross liquidations of European sovereign debt. See the GATA article (CLICK HERE) and the USA Gold Forum (CLICK HERE).

EUROPE AT GATE OF DEFAULT

◄$$$ THE LARGEST PRIVATE PORTUGUESE BANK IS THREATENED WITH FAILURE. LEST ONE WORRY, THE C.E.O. DENIED THE RUMORS. $$$

Rumors of persistent nature preview the coming events. The head of the largest private Portuguese bank struggled to deny bankruptcy rumors. An imminent bankruptcy looms in Lisbon, fueling further speculation. The head of Portugese Banco Comercial Portugues, Carlos Santos Ferreira, sent a message throughout the bank offices about unscrupulous authors trying to undermine the confidence of the bank, that any claims of being on the verge of bankruptcy as groundless. The response maneuver by Ferreira was intended to gain credibility, but such gestures usually confirm the reality. Portguese banks have been shut out of the interbank funding market for months, relying exclusively on the Euro Central Bank. Their bankruptcy could occur at the stroke of a pen, or a lift of the telephone.

◄$$$ GREEK GOVT BONDS SHOULD LOSE 16% OF VALUE IN AGREEMENTS. REGARD THE GESTURE AS A TRIAL BALLOON, BUT ALSO AN INSULT TO MARKET MECHANISMS. THE EUROPEAN BANKERS ARE ATTEMPTING TO GENERATE SOME STABILITY THROUGH STEPS IN DEBT WRITEDOWN, DONE THROUGH THE FORMAL BANK STRESS TESTS. THE CONCEPT OF PICK & CHOOSE CANNOT SUCCEED WITHOUT MARKET VALIDATION. THEN DEUTSCHE POST BANK WAS RUMORED TO HAVE FAILED THE STRESS TEST. $$$

Rumors were used as a seeming policy device to test the market reaction on European sovereign debt writedown, not really to check the bank health. The rumor was of a 16-17% Greek Govt Bond cut in valuation. It sent the European stock market into a strong rise. The leak was targeted on the discount applied to Greek debt to be executed, as part of the formal Bank Stress Test, by German bank sources. The first trial balloon of a 10% discount on Greek debt failed to produced the desired effect. Its test failed, since the financial markets yawned. A political selection process is underway, one that seemed doomed since it defies market forces. The supposed markdown applied to French Govt sovereign bonds was to be only 0.7%, an amount that contradicts any reasonable effect to come from the simple dynamic that French banks own a large portion of Greek debt. Then reports indicate that German sovereign bonds are not to be stressed at all in the exercise, or floating rumor mill. Bear in mind that the European Union through its agent the Euro Central Bank, has already gobbled up a massive amount of Greek bonds, and almost no French bonds. The inconsistencies and misalignment reveal the political side to the process, certain to suffer a market contradiction. See the Zero Hedge article (CLICK HERE).

More rumors were flying in the wind, that Deutsche Post Bank needed a sizeable capital infusion to appear solvent and pass the Stress Test. Despite the rumor veracity, it confirms the Credit Suisse announcement made earlier that banks from three countries have failed the Stress Test. Compile the list as Post Bank from Germany, along with Monte dei Paschi di Siena from Italy, along with ATE, Piraeus, and Helenic Postbank NBG from Greece. The Credit Suisse analyst Daniel Davies assessed that Post Bank would need 1.4 billion Euros in capital to shore up to a 6% Tier 1 Capital. See the Zero Hedge article (CLICK HERE).

◄$$$ A EUROPEAN UNION BREAKUP (DISMANTLE) WOULD ENCOURAGE ECONOMIC GROWTH. ITS PRESERVATION WOULD HELP THE BANKERS, BUT CONTINUE THE STIFLING CONDITIONS BETTER CALLED CONSTIPATION. A BREAKUP WOULD CLEAR THE LOGJAM, BUT IT CANNOT HAPPEN WITHOUT SIGNIFICANT DEBT WRITEDOWNS AS PART OF A DEFAULT PROCESS WITH DEBT RESTRUCTURE. POLITICS BLOCKS THE EFFORTS TO REMOVE THE LOGJAM. $$$

A Capital Economics report out of London, led by analyst Roger Bootle, came out boldly with a conclusion. The report states that a European Union breakup would unleash stronger economic growth. The actual dissolution of the formal setup for the 16-nation EuroZone economic region would save the region from years of economic stagnation by improving the competitiveness of weaker members, while at the same time lifting domestic demand in Germany, a necessary ingredient to any European strength picture. The report stated, "The threatened breakup of the EuroZone, which many see as a potential disaster, would actually open the door to renewed economic growth, not just for weaker members of the zone, but for Europe as a whole... [Return to former domestic currencies] would offer them an escape route from their difficulties through economic growth, rather than depression." A breakup would be a disaster to bankers. The London firm believes the weaker economies of Europe face years of economic pain, in their words, if they continue on the path of reducing costs and prices in order to regain competitive ness with Germany. The entire extended pen of PIIGS nations, Portugal, Italy, Greece, Spain, in addition to Ireland, could quickly rebuild their competitiveness if they returned to their own former currencies, which would depreciate and thus spark export demand. This is precisely the Hat Trick Letter plank for European economic reform and recovery, stated consistently for several months. The plan is obstructed by bankers. The report made the conclusion that a full abandonment of the Euro currency would assist Germany, since a restored DeutscheMark would appreciate and nudge their government expand domestic demand to maintain jobs and growth. A re-energized import trade into Germany from other European nations would work to rebalance the European economy. The German standard of living would be preserved. Clearly, Germany would be forced to deal with a headwind for growth and income. They have proven in the past to deal with such challenges. See the Bloomberg article (CLICK HERE).

◄$$$ THE GERMAN PLAN IS SOVEREIGN DEBT DEFAULT, NOT BAILOUTS. GERMANY HAS ESTABLISHED THE RULES FOR BANKRUPTCY IN ORDER TO ACHIEVE ORDER IN EUROPE. THE TALK IS OF BAILOUTS IS INTENDED FOR POLITICAL CALM. THE ACTION IS DEFAULTS, AS A NEW CURRENCY SYSTEM IS THE REAL OBJECTIVE. THE INSINCERITY WAS EXPECTED MONTHS AGO IN MY FORECASTS. IF ANY BAILOUT OCCURRED, THE SOURCE OF FUNDS WAS THE USDOLLAR SWAP FACILITY, NOT GERMAN BANKS. THE TRUE MOTIVE HAS COME FORTH SLOWLY. $$$

The European Financial Stability Fund (EFSF) is the platform upon which true motives are revealed. The Der Spiegel article broke the story. They reported a directional change in Germany among its politicians and bankers, when actually it was only a revelation of what has been the impetus all along. The German plan is for sovereign debt default, not bailout. The bailouts are accidents unavoided on the political highway. The defaults are inevitable blocked tunnels directly ahead, from asset caveins amidst rampant debt destruction. The consensus notions of EU national bailouts will turn out to be a disappointment at best, and a ruse at worst. My forecast since December has been that Germany would talk about bailouts and grand aid packages, but deliver next to nothing, relying upon political landmines and high court decrees to de-rail and disrupt any agreements forged from poor process. Rumors have swirled in the market that the German Finance Ministry has been working on a Plan B for the EU bailout, gradually being revealed. The consensus bailout notion expected the EFSF to be drawn upon. Nations like Spain would be unable to roll over their debt in refinance, then turn to the big fund under the collective name of the European Union as lender of last resort. The rules of the EFSF are fluid enough to permit the true motives to come forth, default. Maybe default, restructure, then debt purchase at discount is the ultimate plan, whose last step involves drawing money from the big fund.

The German officials seem to have sloaly revealed their hand, their plan, their motives. They are pushing what amounts to a bank bailout/sovereign default plan consistent with what took place in Argentina, not at all a direct blatant sovereign bailout. The end result, the bottom line is to expect private deep debt writedowns on assets held and deep debt discounts on assets bought. Der Spiegel has suggested 50% as a point of reference on writedown discount. The process, a slightly different road, would leave the EFSF to be used by various national countries to bail out their own banks with exposures to the defaulting nation. Details would be forthcoming from the last line bankers, those who reside in Germany. Little has been mentioned about the German electorate during the Greek debt deliberations. They will find this different road to be much more acceptable. The German people are hard working, and would much rather offer viable assistance to banks skewered by Greek debt than to the Greek nation directly in deficit support packages, but only after debt bonded security writedowns. The cost is less too, as default involves writedowns and thus less money in the packages themselves. The brain trust behind the German position must realize that without improved competitiveness, without structural reform to change the path of red ink, without more prudent budget allocation, the Greek deficits will not improve. Continued aid without profound reform and change would be tantamount to a continued credit card allowed to a reckless child still enjoying the good life without cares or responsibility.

Germany is attempting to establish the rules for a rational bankruptcy process, in order to achieve order in Europe where little currently prevails. The cost of bailouts is so huge, with certain indelible marks coming to the taxpayer public. The German Govt is working overtime to prepare a set of insolvency rules for countries to operate in the EuroZone. The rules would require private investors to bear some of the financial burden, namely to accept asset writedowns, and force the affected countries to give up some sovereignty, namely swallow budget cuts of some kind. The plan is certain to face resistance, but reality will force the issue. See the Der Spiegel article (CLICK HERE).

◄$$$ RETAIL SALES IN ITALY PLUNGE IN JULY, FOR A HOST OF REASONS. ITALY, SPAIN, AND PORTUGAL ARE SQUARELY IN THE CROSSHAIRS OF BANK SYSTEM BREAKDOWN. THE ENTIRE SET OF P.I.G.S. IS THE TARGET OF ECONOMIC RUIN. $$$

Retail sales at the margin in Italy are dominated by clothing and fashion generally. Numerous factors conspire to wreck the Italian Economy. The pundits put blame on lack of confidence. The nation of Italy has not been the beneficiary of steady bailouts, stimulus, and nationalization programs. A powerful decline in end demand has been seen. It is gaining momentum on the downside. Sales comparisons are miserable, year over year. Summer sales receipts are tracking at a 5% decline across the board, not seen in decades. A strange but very real factor is blamed for poor sales. The lousy performance by the Italian football (soccer) team at the World Cup has left a glut of jerseys unsold. Italy won the last World Cup four years ago. High end Prada and Gucci brands are offering deep discounts to entice shoppers into the stores. Premium products go wanting. The lesson learned will probably be ignored. The USEconomy, absent its usual crutch of stimulus and tax breaks, will struggle to walk upright without faltering. Italy offers a glimpse of what comes to the US without stimulus.

◄$$$ SPANISH BANKS CONTINUE TO BE SHUT OUT OF CREDIT MARKETS, AS THE EURO CENTRAL BANKS EXCLUSIVELY FUNDS THE NATION. PARALYSIS IDENTIFIED A MONTH AGO CONTINUES. PUBLIC BOND SALES HAVE HALTED. A LIFELINE EXISTS TO THE EUROPEAN CENTRAL BANK. THE CRISIS IN SPAIN IS FAST REACHING A SYSTEMIC BREAKDOWN POINT. $$$

Spanish banks borrowed a record 126 billion Euros from the European Central Bank in June. No government bond sales had taken place in May or June, a funding standstill. The credit market in Spain is locked and frozen in insolvency bound in distrust. Spanish banks borrowed a record 126.3 billion Euros (=US$161 billion) from the EuroCB in June, to make a 48% jump from the 85.6 billion Euros borrowed in May. Funding and liquidity conditions in Europe are nowhere near normal. The EuroCB has turned into a Spanish central bank surrogate, a situation that will not last long. Bond investors are on strike while the bond issuers do not dare risk a total failure in public view for auction. Investors in Spanish debt are openly worried about the lack of reform and the nation's ability to restore fiscal discipline, as their huge deficit acts like an open wound to the economy. The spread on 10-year Spanish Govt debt has tripled to 200 basis points (=2.0%) since January, versus the benchmark German Bund. The problem is more basic when viewed from a bond market perspective. Bond investors demand a much higher bond yield, in the face of acute risk, from both rising deficits and persistent economic recession. The bond issuers require reasonable prices to offer in bond sales, or else the deficits accelerate from the borrowing costs as well. The pressure on Spanish banks will continue to worsen. Conditions are not conducive to agreements at the micro level. Just as with the US banks and the USFed, the central bank has stepped in to act as the banking system itself, and the bond market in surrogate. Dependence upon the EuroCB has amplified greatly to total.

Banks across the continent have suffered great damage to balance sheets and solvency, as a result of bond losses to sovereign debt from bonds of Spain, Greece, and Portugal. The European banks have had to deal with losses totaling 438 billion Euros in writedowns since the credit crisis was triggered. Like the United States, these bank losses are small compared to equity loss in property across Europe. More big bank losses are coming, well over $2 trillion. The national deficits add to the stress. Bond issuance atop past losses has resulted in a funding standstill, a lockout. So far to date, the Spanish Govt plan to use the Fund for Ordered Bank Restructuring (FROB) has been very slow out of the gate, and might be a failure in its infancy. The fund has raised 9 billion Euros from the government and sold 3 billion Euros worth of bonds so far, according to Bank of America data. One can conclude that the Southern Europe rim is insolvent, has no access to capital markets, and would collapse without the EuroCB last resort. The situation cannot last much longer without extreme crisis events. The Stress Tests, if run fairly, will only add to the crisis. If run dishonestly, like the Americans did, then the false facade might buy a few months. In the US, the entire system is so thoroughly corrupted that perceptions matter little, as brute force of monetary inflation, bond monetization, and USFed largesse permit the system to continue. The US has become overrun by Bank Zombies within an Economic Zombie. The nations of Southern Europe are on the same Zombie path.

◄$$$ HUNGARY CONTINUES TO TEETER. NEGOTIATIONS TO RESCUE HAVE BEEN ABANDONED AFTER AN IMPASSE THAT INCLUDED ADMISSION OF MORE LIES ON BUDGET DEFICITS. NATIONAL GOVTS ARE NO MORE HONEST THAN WALL STREET AND LONDON BANKERS. THIS IS GREECE REVISITED, WHILE SPAIN IS GREECE TIMES SEVEN. $$$

The Hungarian Govt Bond is set for a strong decline after the IMF and EU abandoned negotiations for financial rescue. The Intl Monetary Fund and European Union ended formal talks without endorsing Prime Minister Viktor Orban's plans to control the budget deficit. The IMF is on the hook for most of the 20 billion Euro emergency loan to Hungary under a 2008 accord. The EU predator banks harp on how Hungary must make difficult decisions on spending, the same tough choices that WashingtonDC and London refuse to make. The cushion to support Eastern Europe that comes one layer above governments is surprisingly thin. The Hungarian Forint currency is doing poorly, having lost 6.5% against the Euro in the past three months, the worst performance among the more than 170 currencies tracked by Bloomberg. The Forint currency serves as a visible battleground. The yield on the benchmark 3-year Govt Bond rose a whopping 153 basis points to 6.93% on July 16th, a single day. Deception ruled. The Orban landslide victory in April came after by pledging to end the massive budget cuts from previous years ordered by rival leaders. The Hungarian deficit was cut to 3.8% of GDP in 2008 from 9.3% in 2006. With the glow of the election worn off, Fidesz said the previous administration lied about the budget as Orban lobbied the IMF and EU to allow wider deficits this year and next. Officials from the Hungarian Civic Union political party Fidesz disrupted financial markets in early June, when its leaders admitted the economy was much worse than the portrayed, leaving the country with a slim chance to avoid a Greek situation, in their words.

The Hungarian Govt tried to persuade the IMF to accept a deficit target of as much as 3.8% of GDP for 2011 instead of the 2.8% demanded, according to Economy Minister Gyorgy Matolcsy. The United States maintains a deficit 10% of GDP, and that does not count the costs from the endless sacred narcotics war being waged. Sense the double standard!! Budapest wished to secure a 2-year bridge loan agreement for as much as 20 billion Euros beginning in 2011, said Matolcsy. He made a public statement that read, "During the talks with the IMF and EU delegations, the Hungarian Govt openly and honestly revealed the problems stemming from the misguided budget management in the first half. The government will naturally continue negotiations with international organizations, including the IMF and the EU." The door remains open for continued talks, but a wide rift has opened. This is Greece all over again, in a nation not vital to the European power center. Gergely Suppan is an economist at Takarekbank Zrt in Budapest. He said, "The statements suggest that the parties did not turn hostile. The IMF probably wanted to see the basis of the 2011 budget, and the government could not show specifics." The impasse will force movement. See the Bloomberg article (CLICK HERE).

CHINESE ENIGMA TURNS A CORNER

◄$$$ CHINESE TRADE FIGURES SHOW THAT MARCH WAS A STATISTICAL ANOMALY (FLUKE). THE CAPITAL DRAIN CONTINUES FROM THE UNITED STATES AND EUROPE TO CHINA IN A BIG WAY STILL. INTERNAL BUBBLE EFFECTS TO CHINA HAVE NOT HAMPERED ITS EXPORT TRADE, WHICH IS DEPENEDENT UPON FOREIGN ECONOMIC HEALTH. $$$

What was seen as a warning bell in March has passed. The first trade deficit for China in many years of $7.2 billion logged in March is proving to be a fluke, an anomaly of some sort, as a fresh surplus was registered. The Chinese export juggernaut continues with momentum and durability. The Chinese General Customs Admin released the June trade data. The nationwide June trade surplus came in at $20.0 billion, as imports were flat, but exports grew strongly. The outcome seems unaffected by Yuan currency decisions and by vapid cheery empty words by American and European politicians on the desire to stimulate their exports. The intractible difference, as stated for six years in the Hat Trick Letter, has been and continues to be the gross differential in labor wages between China and the West. When 10-fold different or only 5-fold different, the wage imbalance drives the process. Imports jumped by a huge $32 billion in March, but have steadily risen between $120 and $140 billion since then. Fiscal stimulus abroad, Yuan currency revaluation at home, and dirt cheap shipping costs (see the Baltic Dry Index) have combined to lift US and Europe exports to multi-year records. Exports to the EU hit $27.2 billion, the highest since the summer of 2008. Exports to the US hit a record $25.5 billion. USCongressional leaders hellbent on trade sanctions against China, like Senator Schumer, will be further motivated to rattle the sabres for sanctions that stick, a destructive step but loaded with political appeal. See the total Chinese data with net trade balance. Note the left scale pertains to import and export, the right scale to the net difference (solid line).

Observe the monthly trade details with the United States and European Union. The US net imbalance tipped above $18.0 billion. Records were set bilaterally on Chinese exports to the US and the net surplus to the US. The Obama Export Commission is not succeeding with their tasked mission. Exports from China to Europe are pushing the record level. Given the stronger trending imports to China from Europe, probably the result of more US trade friction, the EU surplus is $3 billion below record level.

A Chinese analyst working out of Hong Kong expects June to be an anomaly month, as structural changes are in the process. Shen Jianguang is an economist at Mizuho Securities Asia, who warns, "Exports may see a sharp deceleration after July as demand in Europe and the US weakens and a stronger Chinese currency, higher wages, and reduced export tax rebates erode the competitiveness of Chinese goods. The government may have to intensify efforts to boost the domestic economy as they have limited control over external demand." The Obama Admin has set a stake in the ground, with a goal of doubling exports in five years. The start out of the gate is miserable. The United States must address overhead costs, regulatory burdens typical of other socialists, and basics such as labor force skills. Europe suffers from currency instability, sovereign debt rejections, and fiscal budget austerity, which are certain to undermine demand. The significant decline in shipping costs, evident in the Baltic Dry index, reflect poor economic conditions and weak demand. Some analysts regard the June figure to be a culmination of all monetary and fiscal measures, which are not to be monthly effects.

◄$$$ CHINESE PROPERTY PRICES ARE DUE TO DECLINE 30%, NO IFS ANDS OR BUTS. VACANCY AND HALTED BIDS ENSURE THE DECLINE. CHINA HAS A MUCH BIGGER PROPERTY BUBBLE THAN THE UNITED STATES, AS THEY CONCEAL THEIR ACTUAL CREDIT VOLUME. THE CHINESE GOVT IS FORCING A REDUCTION IN CREDIT AND TIGHTENING OF LENDING, AS WELL AS SPECULATION. BUMPS, BUSTS, AND ENTITY FAILURES COME. THEIR RESERVES WILL BE CALLED UPON TO PAVE OVER THE MESS. $$$

The bank Standard Chartered forecasts a 30% broad property decline in China urban areas, where overdone construction took place that kept the workforce occupied. Next comes payback. The forecast was directed to property prices in Beijing, Shanghai, Shenzen, and other large cities in China. Higher supply is meeting lower demand. Monetary tightening has begun to hit and be felt. A glut of newly built homes has encoutered buyers who are restrained by higher down payment rules and curbs on speculation, as the industry faces a proposed property tax. The central bank has told bank lenders to set aside greater reserves, and targeted a 22% cut in credit growth at banks this year. China's property market is beginning a collapse stage that will render damage to the nation's banking system, said Kenneth Rogoff.  He is the Harvard University professor and former chief economist of the Intl Monetary Fund. Witness a big bump in the road of industrialization. Chinese authorities intensified a crackdown on property speculation after announcing the economy expanded at a torrid 11.9% annual pace in the first quarter, the most since 2007. Even if three quarters of that, such a pace is still torrid.

Rogoff summarized his view, saying "You are starting to see that collapse in property and it is going to hit the banking system. They have a lot of tools and some very competent management, but it is not easy. The bad news is the recoveries are very slow. The fact that we are not growing super fast does not necessarily say, well therefore we are about to enter something worse. [In the aftermath of a financial crisis] you do not get a typical recovery with a V-shaped [trajectory]." Although Rogoff makes sense, he reveals the shallow depth of economist intellect and minimal grasp of the full nature of structural problems, based in phony money and unchecked debt growth. Rogoffs view clashes with that of Stephen Roach from Morgan Stanley Asia, who in June stated his belief that the property boom in China is not a bubble. He points to portions of the market such as high end apartments that are overheating, but expects residential demand will remain robust as rural Chinese migrate to cities. Roach seems delusional, unaware or in denial of a vast vacancy scourge in Beijing that approaches 50%, a problem affecting other large cities after a construction craze that has yet to fully die down. Roach is way off and losing his once excellent touch. Peasants entering the cities will come with empty pockets, he must be aware. China's five largest state controlled banks plan to raise as much as $54.5 billion of capital by selling bonds and shares after they extended record loans last year to support a Chinese Govt stimulus plan. See the Bloomberg article (CLICK HERE) and the Business Insider article (CLICK HERE).

When China shared a US monetary policy with a tight peg (same interest rate and forbidden currency shifts), then shared the policy with a looser peg, they shared the outcome of asset bubbles and busts, the bubblicious outcomes. Take two stunning information items about the Chinese property market. The debt ratings agency Fitch has revealed that China has been badly under-representing the volume of new loans in 1Q2010, using the same hidden type of securitization deals as the United States. Fitch estimates that the net amount of new Yuan-based loans extended in the first half of 2010 was closer to Yuan 5.9 trillion, or 28% above the official figure of Yuan 4.6 trillion. Like the US, credit volume has shifted off balance sheets. Like the US, credit activity is concentrated among just a few dozen banks. China is remarkably similar to the United States in bank behavior generally. Then came a recent article in South China Morning Post, in which an economist at the Chinese Academy of Social Sciences noted an estimated 64.5 million empty apartments and houses in urban areas of the country! His method was clever and simple, using electricity meter readings. This tally is five times larger than the 12 million in total US home inventory that includes the banks and shadow inventory of foreclosed homes. China is quietly funding and creating a housing bubble in hidden fashion that is five times bigger than the one that busted in the United States, taken down the banking sector and USEconomy in the process. See the Zero Hedge article (CLICK HERE).

USTREASURY FRAUD & UK ACCOMPLICE

◄$$$ CHINA DOWNGRADED THE USGOVT DEBT FROM TIPTOP 'AAA' TO ONE LEVEL LOWER. IN A TRADE WAR ESCALATION, THE CHINESE DAGONG CREDIT AGENCY TOOK BOLD ACTION AS IT DOWNGRADED A RAFT OF WESTERN DEBT. IN TWO YEARS THEIR MOVE WILL SEEM BRILLIANT. NOTICE THE CHINESE MISDIRECTION. DELUSION, COMPROMISE, AND CORRUPTION STILL RULES OVER WESTERN DEBT RATING AGENCIES. $$$

The Currency Wars saw a big dose of lighter fuel tossed on the fire last week when US sovereign debt suffered a downgrade at the hands of China's Dagong Credit Rating Agency. Consider it a trade war escalation with a surgical strike. Dagong pushed USTreasurys down from number one in the world, to a distant thirteenth place. The Chinese rating agency in a stroke stripped Western nations of AAA status, since the US debt rating agencies ignore the obvious credit risks. China's leading credit rating agency has stripped the United States, the United Kingdom, Germany, and France of their AAA ratings, accusing Anglo-Saxon rating competitors of ideological bias in favor of the West. The Dagong agency used its first splash into sovereign debt to establish a bold standard of creditworthiness around the world, giving much greater weight to wealth creating capacity and foreign reserves than Fitch, Standard & Poors, or Moodys. They also pay attention to rapidly escalating debt levels. The move makes perfect sense.

The Chinese Govt is well-known to act in a subtle manner. Lately, they have been using misdirection as well as bold actions. The Western debt downgrade by Dagong was bold. More devious has been the gradual sale at the margin of USTreasurys by China, while maintaining a high level still in reserves. The total USTreasurys owned in combined terms by China and Hong Kong changed little in almost the last year. In July 2009, the total was $1.051 trillion. In April 2010, the needle showed $1.052 trillion, a flat trend. The Chinese have wisely chosen to manage their US debt risk by stemming incremental purchases while shifting away from short-term USTBills. The misdirection came before the halt in US$-based bonds. In February 2009, director general Luo Ping of the China Banking Regulatory Commission said rather deceitfully, "Except for USTreasurys, what can you hold? Gold? You do not hold Japanese government bonds or UK bonds. USTreasurys are the safe haven. For everyone, including China, it is the only option." Yeah, right!! Clearly, Ping wanted US leaders and other foreigners to fall for his false line. China was selling large portions of its USTreasury portfolio, and wanted to preserve their value. Ping also deceived the US leaders on their gold plans. In the months following Ping's speech, China doubled its gold holdings.

The latest volley is the Dagong Global Credit Rating downgrade of USTreasury debt from AAA to AA with a negative outlook. In doing so, they rate Chinese sovereign debt a nick higher than American sovereign debt. The Western press is free to denigrate the move. The Financial Times immediately insinuated the privately owned Dagong is a tool of the Chinese Govt, and claimed in pathetic feeble fashion that ratings by Standard & Poors, Moodys, and Fitch are still more likely to be trusted. Mere words without substance. The US credit agencies, as a group, are tools for Wall Street, exploited to the hilt, steeped in collusion, while Wall Street controls the USGovt finance ministries. Hypocrisy again. China has downgraded US debt and has stopped increasing its USTreasury holdings. See the Cafe Americain article (CLICK HERE) and the UK Telegraph article (CLICK HERE).

◄$$$ CHINA USAGE OF US$-BASED DEBT AS THREAT IS A FRONT BURNER TOPIC. THE CHINA DENIAL CARRIES NO WEIGHT, LIKE A GOLDMAN SACHS RECOMMENDATION OR A USGOVT REPORT ON INFLATION. CHINA SAYS IT WILL NOT USE USTREASURYS AS THREAT. OF COURSE THEY WILL. THEY IMPLICITLY WARN TO WITHDRAW STIMULUS AND MANAGE THE MONETARY GROWTH THAT UNDERMINES THE USDOLLAR. THE CHINESE ARE LYING ABOUT RESERVES MANAGEMENT AGAIN, HAVING LEARNED FROM THEIR ANGLO DEBTORS. $$$

China's State Administration of Foreign Exchange (SAFE ) has begun a publicity campaign, probably to raise attention to how vulnerable the USGovt is, surely with motive the opposite of any promise not to use a financial weapon of mass destruction. The destruction would also be of their own reserve accounts, of which sovereign wealth funds play a key role. SAFE officials tried to ease concerns, promising it would never wield its holdings of USGovt debt as a weapon. They strive for clarity about management of China's $2.5 trillion in FOREX reserves, the world's largest. It contains $868 billion in USTreasurys at last count. The growing fear is that, in anger over trade friction, or in disgust over horrible USDollar management, or with ambition to displace the US from its catbird seat, China could dump a truckload of USTBonds every day for a 90-day period and accumulate gold with the proceeds, and thus cause a global panic, centered upon a USDollar monetary crisis. The focus should be squarely on China, not Russia, in financial war games. The Chinese Govt denies the intention to use USTBonds as a weapon, which is tantamount to admitting the threat is real, often called the 'Nuclear Option' aptly. Its mere mention serves as a threat! The dumping of US$-based assets has become a front burner issue, since the USTreasury bubble has emerged as of the autumn 2008 collapse of the US financial sector. In building a gigantic debt burden, THE UNITED STATES HAS FORFEITED ITS SOVEREIGNTY, and made itself vulnerable to creditors who have never been allies in a century. The next chapter has been played out 100 times, but never against the United States.

The publicity by the SAFE fund of the risk, the weapon, the option, the denial, serves as a reminder that the nuclear option not only exists but is certainly at the forefront of any diplomatic negotiations with the United States. The USGovt acts as though it still commands the global catbird seat, while its vulnerabilities are every bit as great as Greece, surely worse. Foreigners play along, not at all amused. The SAFE official position is laughably dishonest. It reads, "SAFE is lukewarm about gold as an investment. It cannot become a main channel for investing our foreign exchange reserves. The size of the gold market was limited and prices were volatile. Buying more gold would also not help much in diversifying China's reserves." Of course, all the above is patently untrue, mere sides of a blunt instrument forged as a modern weapon. One can deduce that the Chinese Govt has issued warning not to embark on another powerful round of Quantitative Easing. Imagine a villain putting a big sharp serrated knife to a man's throat up against the wall, and saying "I will never use this big powerful knife with my capable strong arm on your arrogant neck, where your bulging carotid artery is more exposed every month!" Of course, it is a threat, in the middle of a growing trade war that the Hat Trick Letter forecasted back in 2004 and 2005, back when partnership was the stupid chorus line by clueless American economists and nitwit USGovt officials. Partners turned to rivals as predicted, then to enemies as predicted. Economists are as stupid and badly trained as they are self-deceptive and compromised, my usual refrain in harangue.

The Chinese have their own bond problems. Their 7-day and 30-day repo markets suffer from great strain on an increasing basis. The presence of large amounts of gold in reserve would certainly allay fears that domestic banks have something beyond massively underwater residential loans on their balance sheets to fund trillion$ in liabilities. The Chinese statement warns the arrrogant USGovt officials who are hellbent in hurtling over the fiscal cliff, but face the road to ruin anyway, from massive irresponsible over-spending and massive reckless money printing. Not if, but when USFed Chairman Bernanke hits the switch and sends the Printing Pre$$ into turbo-charge mode once more, the Chinese Govt will in some highly visible way abandon support for US$-based assets. They can disable the USEconomy. They acknowledged that financial markets were very concerned that massive USGovt borrowing.

The SAFE fund position can be summarized using their own words. Most is bland boilerplate verbage, general and harmless. They wrote, "Any increase or decrease in our holdings of USTreasurys is a normal investment operation. The USTreasury market is the world's largest government bond market, and USTreasury bonds deliver fair good security, liquidity, and market depth with low transaction costs. The USTreasury market is a very important market for China. We must recognize that any depreciation of the dollar is relative to other countries, and other countries or regions also have this or that problem. SAFE will never be a speculator. It mainly seeks to protect the safety of China's FX reserves and ensure a stable investment return." Between the lines is a veiled message of how important their FX reserves are, and preservation of value is of paramount importance. Their line about universally shared problems is an implicit endorsement of gold. SAFE called on the United States and other major countries to take responsible measures (in their words) that maintain the US$ valuation. One should hear this as a loud warning to withdraw monetary stimulus in a reasonable manner and to rely less on deficit spending. The Chinese wish to avoid a loss in their savings. They claim the USDollar decline represents no clear threat for real reserves loss to China, but that is plainly untrue. They are lying, just as the USGovt lies. The battle is on with liars on both sides, except one side is the deep debtor and the other is the deep creditor. One can be sure they both do the exact opposite of what they say. See the Bloomberg article (CLICK HERE).

◄$$$ USGOVT DEBT ISSUANCE EXCEEDS EVEN THE GARGANTUAN USGOVT DEFICITS. THE GAP IS $1.5 TRILLION OVER FOUR YEARS. ONE COULD GUESS THAT WALL STREET IS SELLING BONDS AND SQUIRRELING THE MONEY IN FOREIGN BANKS, A BASIC COUNTERFEIT IN A SYNDICATE OPERATION. THE OPERATION MIGHT BRING NEW MEANING TO MONETIZATION. $$$

Under Goldman Sachs rule, the USDept Treasury is running some bold kind of counterfeit game, whose purpose is unclear. The USGovt borrowing through debt issuance was $142 billion more than the June USGovt federal deficit, which means they are doing more than financing the deficit. THEY ARE FUNDING A SYNDICATE! In chronic fashion, excess issuance has been the pattern, as the USGovt has issued $1.5 trillion more in debt securities than its budget deficit in the past four years. During the past 45 months, the USGovt has accumulated an incremental $4.7 trillion in new debt, but the federal budget deficit has grown by $3.2 trillion, much less but still a mammoth amount. Nobody asked why so, and nobody asks where the bond proceeds go. One is left to speculate that a vast bold new syndicate technique is simply selling bonds beyond newly formed debt, stealing the funds as proceeds, and tucking the bonds in foreign locations for syndicate usage.

The June USGovt official budget deficit was logged at $68.4 billion. During the same month, the USGovt borrowed a staggering total of $210.9 billion. These are not refinances of USTreasury debt in rollover. On a consistent basis, the USGovt has borrowed much more in each deficit month than was required to close the deficit and finance the debt accrued. The differential of excess debt issuance for the first six months of 2010 comes to a hefty $290 billion, a pattern in continuance. Perhaps the US syndicate maestros figure that with large numbers, nobody will notice, or given the hidden monetization, they might as well put the presses in hyper-drive. The cumulative data, as well as the mindboggling differential (dotted line) between the two series is shown on the attached chart. Perhaps it is for war funding far in excess of the stated costs, to save embarrassment and questions. Perhaps it is for enormous vertically integrated business investment in Afghanistan for processing of poppy into heroin, or heavy extra distribution costs, or for elimination costs to competitors. Perhaps it is for the heavily rumored underground cities under construction for elite resident purposes. Perhaps it is extra costs for secretive new military bases scattered like a cancer across the globe. Perhaps the answer is simpler, in that it is just being counterfeited and stolen by the financial syndicate led by Goldman Sachs that controls the USGovt financial ministries, and operates criminally with full impunity (except for meager fines). My sincere belief is that all the above are part of the destinations for the money.

◄$$$ JIM ROGERS HATES USTREASURY BONDS AND LOVES GOLD. HE SPEAKS IN PLAIN WORDS, WITHOUT PREFACE, WITHOUT CONFUSION, AND WITH NOTABLE CONSISTENCY. $$$

Popular and successful independet investor Jim Roger urges to sell USTreasurys and to buy precious metals. He also favors rice as a refuge investment, as the global economy continues having problems. At a conference in Kuala Lumpur, the maverick chairman of Rogers Holdings said, "Bonds are not a good place to invest in. You should own commodities because that is your only refuge." He mentioned favorably both silver and rice. The best place to be is in commodities and other natural resources, including precious metals like silver, platinum, and palladium. Commodities are strong investments since supply shortages are already developing, and stockpiles are accumulating from heavy demand as a hedge against the persistent monetary problems and sovereign debt rejections. In the last several months, sovereign debt and currencies have been in crisis mode. Gold prices will rise to more than $2000 per ounce in time, said Rogers.

◄$$$ CHINESE DUMP USTREASURYS AND ENGLAND ACCUMULATES THEM. OR MORE ACCURATELY, THE USFED HIDES ITS VAST MONETIZATION EFFORTS IN THE U.K. ACCOUNT. NO WAY IN HELL CAN BRITAIN PURCHASE $170 BILLION IN USTREASURYS IN FIVE MONTHS FROM LEGITIMATE SOURCES OF SAVINGS!! THE ILLICIT PURCHASE AND ACCOUNTING NEEDS PUBLICITY. $$$

In May 2010, China reduced their USTreasury holdings by $32.5 billion, now the lowest level since June 2009. China shed $35.4 billion in short-term USTBills, offset by a mere $2.9 billion in purchased USTBonds. Furthermore, Japan reduced by $8.8 billion in USTBonds. Even the OPEC nations have cut down on such assets. However, buyers could be found, all Anglo descent, at least on the surface. The total foreign USTreasury holdings rose from $3957 billion to $3964 billion. Attribute the good tiding news to gigantic ongoing accumulation by England, just like the last several years. The UK-based buying is highly suspicious, like a neighborhood crack house purchasing a swimming pool, but arouses no attention except by intrepid analysis on internet publications. Even the usual suspect of Hedge Funds, whose registry and tallies track to the Caribbean Banking Centers, saw an increase from $151.8 billion to $165.5 billion in a detour of the risk trade. Generally, the United States financial system suffered a dramatic decline in May as foreign purchases of US assets hit a wall, falling from $110.3 billion to just $33 billion. Even the more staid Corporate Bonds and Corporate Stocks suffered net selloffs, for the first time since February 2009. See the graph of steady Chinese unloading of USTreasurys in the last several months.

As of end May, China still holds a gaggle of USTreasurys, but their USTBill holdings are down to a trifling $7 billion, the lowest level ever! If the USGovt is making a maelstrom on the short end, then China will sell into the confusion, especially at high principal prices tied to near 0% yields. China is selling the bubble. China still commands the notorious position of possessing the most USTreasurys at $867.7B worth, followed by Japan at a still robust $786.7B. Without any question whatsoever, the USFed and USDept Treasury are using the United Kingdom as a ledger item for their mammoth USTreasury monetization, all barely hidden, with the TIC data used as a pathetic fig leaf to obscure it. The story receives no mainstream attention. The United Kingdom has wrecked banks, staggering deficits, no trade surplus, yet managed to buy a whopping  $28B of USTBonds in just the month of May. Call their investments an exponentially growing savings plan. At end 2009, as of the December tally, the UK owned $180.3B in USTBonds, yet somehow managed to accumulate in the new year, up to the current $350.0B. THE UK SUPPOSEDLY HAS ALMOST DOUBLED THEIR HOLDINGS IN A MERE FIVE MONTHS!! That is wealth accumulation to make Johann Gutenberg happy, inventor of the printing press. Bear witness to the shadow USFed debt monetization operation, operating out of the United Kingdom, or at least its accounting. The hidden USTreasury Bonds reside in England. If truth be known, this is where the owners of the USFed reside. Anyone who accepts the following graph on its face is a blatant moron, a bold huckster for Wall Street, or a dimwitted employee of government. Review the Treasury Investment Capital (TIC) report for details on holdings for a list of nations, month by month (CLICK HERE). See the Zero Hedge article (CLICK HERE).

◄$$$ UKGOVT SPENDING CUTS RISE FROM 20% TO 40%. THE WORDS BANKRUPT, BROKEN, AND SYSTEMIC FAILURE SEEM APPROPRIATE. BRITAIN COULD NOT COPE WITH AN EXTENDED EPISODE IN THE CREDIT CRISIS, ACCORDING TO THE BANK FOR INTL SETTLEMENTS. THIS IS THE NATION THAT GOBBLED UP $170 BILLION IN USTBONDS FROM RIPE SAVINGS IN FIVE MONTHS?? $$$

The Bank For Intl Settlements has warned that sovereign debt under siege cannot adequate be relied upon as the coupon for broad national financial rescue and stimulus, not again, not in the next round. Short messages deliver the most power. The UKGovt is admitting openly that the situation is worse than they said before. They will order not 20% spending cuts, but 40% in such cuts. Newly ordained Prime Minster David Cameron ordered the officials to draw up 40% cuts, the biggest in history. He has ordered cabinet ministers to draw up a Doomsday budget whose essential service spending cuts could see tens of thousands of policemen, teachers, and other civil servants lose their jobs, including garbage collection. These are integral telltale steps in the ugly march to the Third World. See the UK Daily Mail article (CLICK HERE). This desperate nation, this nation of a busted finance sector, this nation whose economy is in a tailspin without strong industry, this nation purchased $170 billion in USTreasury Bonds from its savings between January and May 2010 !?!?!?

In the summer 2008 leading up the the Wall Street death experience, the British suffered their own shameful episode with Northern Rock, Royal Bank of Scotland, even the venerable Lloyds of London each succumbing, no longer on the lists of the living. They are all broken, just as broken and insolvent and wrecked as the biggest US banks, all Zombies. In the last several months, Britain has struggled to regain its balance, an impossible task when recovery is not within grasp, and the banks play accounting games to falsify their moribund, even comotose condition. The global central banker, the central bank for central banks, the Bank For Intl Settlements has warned that Britain's mountain of debt could leave the country powerless to respond with another rescue initiative in the wake of a fresh financial crisis. The BIS published the warning in an annual report, painting a frightening picture of the impact from a second banking emergency on heavily indebted nations such as Britain. The Bank of England Governor Mervyn King has estimated that the UKGovt has pumped as much as one trillion Pounds of (phony) money into the banking system, but he failed to mention to total lack of effect for a revitalization response. Billions of pounds were spent in nationalizing the Royal Bank of Scotland (partial), Lloyds Banking Group (partial), and Northern Rock (total) in an attempt to prevent their collapse. They redeemed failure from a real estate bust, which is the absolute opposite of investment or stimulus. Special liquidity measures just like with the US Federal Reserve propped up other lenders and prevented the system from freezing up. The ugly truth is that the UK banking system is dead, but fakes lifelike movements. It cannot sustain a lending role for its economy.

The BIS report warned that repeating these measures could be impossible, since so stretched and insolvent. The key is the market rejection of sovereign debt itself in recent months, the primary instrument of rescue and stimulus. The broken monetary system has removed the primary instrument from which to rescue and stimulate, the sovereign bonds. The BIS report wote, "Events coming out of Greece highlight the possibility that highly indebted governments may not be able to act as a buyer of last resort to save banks in a crisis. That is, in late 2008 and early 2009, governments provided the backstop when banks began to fail. But if the debts of the government itself become unmarketable, any future bailout of the banking system would have to rely on external help." Central bankers fear Europe has suffered the vanishing of external backstops with their own government bonds. The same applies to the United States, except the US hides with fig leaves its vast monetization. What remains is pure debt monetization in the open by USDollar printing, a ruinous display of monetary expansion, which gold will notice and nobody can deny.

GOLD STORIES LEAD TO CLIMAX

◄$$$ MALAYSIA LAUNCHES A GOLD-BACKED DINAR CURRENCY. IT BEARS WATCHING FOR ACCEPTANCE AND USAGE WITH BILATERAL ARAB COMMERCE AND SETTLEMENTS. $$$

The first gold-backed currency was announced last week in Malaysia. It could be an initial step to undercut the USDollar, but usage will determine its effect. Regard it as another crack in the dollar dike. As Tyler Durden said, "Slow incremental acceptance of alternatives form in seemingly meaningless areas of the world. Ranks break first where there is little to lose by change, last in places that cannot afford it." The Islamic Golden Dinar has been mentioned in the Hat Trick Letter many times, but a few years ago. Malaysia has been a weird corner of the world, a minor Islamic hotbed, home of a radical sect. Let's see if any bilateral trade with Arab nations uses it. The problem with valid alternatives is the effect of their success in isolation, not globally. Any such alternative would quickly shoot up in value relative to the current standard, wrecking all banking and commerce that used it. The banks would suffer losses from reserves NOT in its denomination. Commerce would suffer from unstable price structure tied to a rising currency. In other words, it must be used globally and in unison, if it is to succeed. Also, global usage is a requirement to isolate the US & UK, since broad acceptance would thrust the Anglos into the Third World. Gold creates losers when displacing a corrupt unsound monetary system. The Malay initiative will not be global or in unison. The opening line from the UK Guardian author below displays pure ignorance. Paper bills later would be backed by the coins. The currency and coin is scheduled for usage locally in a northern region. FMX Metals Connect published the following.

"Imagine a world trading solely in gold and silver coins. Imagine the size of your wallet. Yet this is the ideal world envisaged by some of Malaysia's activists championing the Islamic Gold Dinar and Silver Dirham as a new form of legal tender to replace paper money, a utopia that could see the light of day as early as the middle of next month. This is when one such group, Muamalah Council, plans to implement the dinar system in Malaysia's northern state of Kelantan. If information on its website is to be believed, the council has the blessing of the state's Islamist government, Parti Islam SeMalaysia (PAS), to kickstart the dinar in three moves. First, the state will pay a quarter of its public servant salaries using the Dinar. Second, all state companies will accept Dinar payments. Lastly, some 600 commercial enterprises will also embrace this currency... What is perhaps more striking is the UK connection to the increasingly globalized Islamic Gold Dinar movement. The Indonesian grouping is adhering to a fatwa issued by the South African-based cleric Sheikh Abdalqadir as-Sufi, a Muslim convert in Cape Town formerly known as Ian Dallas of Scotland. Then there is the Dinar Exchange, the British equivalent of Indonesia's WIN. As the [stated] official certified supplier of Islamic Gold Dinar and Silver Dirham in the United Kingdom, the company had just concluded a month-long series of roadshows in May that saw it promoting the Gold Dinar to Muslims in key UK cities such as London, Birmingham and Edinburgh... Yet, as an anti-capitalist weapon, the Islamic Gold Dinar is far from mint... Its advocates say that the poor could never be taken advantage of because the coins they own have intrinsic value. But Britain's recent gold rush dilemma suggests that the poor do not always get their money's worth, even when trading gold. Like paper money, gold is also vulnerable to the manipulations of valuers, our gatekeepers of wealth." See the FMX Metals Connect article (CLICK HERE). Indonesia is a backwater, but the introduction merits close watch for trade with any Arab and/or Islamic nation.

◄$$$ A MASSIVE SILVER DRAIN ON METALS EXCHANGES IS IN PROGRESS, IN RELENTLESS FASHION. SEE SCOTIABANK AND H.S.B.C. FOR THE SOURCE OF DEMAND. A KEY FINANCIAL SYSTEM POINT OF VULNERABILITY IS SILVER, WITHOUT QUESTION. BRINKS REPORTS HUGE SILVER REMOVALS. SOME BIG EVENT IS BREWING, LEAVING THE JACKASS TO CONJECTURE. $$$

The current run on COMEX silver inventories is not normal operating procedure. What is happening with physical demand develops toward a crescendo. A large portion of the withdrawn silver has taken place from two specific depository sources. The heavy demand is not uniform across all COMEX depositories generally. Details indicate that the banks losing most silver continue to be ScotiaBank and HSBC. ScotiaBank, the object of rumors for many months, has been suspected not to be in possession of adequate physical precious metals in its vaults to cover customer deposits. However, one excellent source calls that claim highly inaccurate and its accusation injurious. More to this story though. On a single day in June, fully 630,000 ounces of silver were withdrawn from other COMEX depositories on the exact day that 610,000 ounces were deposited at ScotiaBank. This is hardly a coincidence, the stuff that fuels rumors. The telltale signs are evident that an emergency transfer from depositories to offer a grand assist to ScotiaBank came, so as to avoid default on making a delivery. On a single Tuesday recently, Brinks shipped a staggering 489,913 troy ounces silver. The heavy withdrawal occurred at several Comex-approved depositories. Virtually all of it came from Brinks Inc.

ONE IS LEFT TO CONJECTURE: My personal belief is that Brinks is assisting a couple dozen private billionaires in removing gold & silver bullion from London, New York, and Switzerland. The bullion is heading primarily to Hong Kong and Singapore, but to some extent Dubai also. They are preparing for a monster magnificent event. A breakdown event is coming to the official precious metals exchanges, maybe with defaults announced, maybe with criminal charges delivered, maybe simultaneous with a pathetic confiscation order by the USGovt and UKGovt. But neutralizing the confiscation order could be arrest warrants for several top Wall Street and London bankers. To this end, on the drain issue, a query went to my excellent reliable gold banker source. He was a little tight lipped, which by my experience means my conjecture is both on the mark and too dangerous to confirm with actual developments. He said, "The Boyz are in for the mega-surprise of their of lives. They have been measured, weighed, and marked for destruction by being pushed on their very own sword, one at a time. Once all is set and done, COMEX and the Boyz are history." He refers to the US & UK bankers. This is a time for patience and discipline as well as caution.

A massive drain of COMEX silver inventories continues unabated, and not much reported by the financial press. Maybe the press regards it simply a commodity metal like copper or lead. The COMEX reported total silver inventories fell from 119.5 million ounces on June 16th, to 113.56 moz on June 30th, in a mere ten days. That is almost 6 moz, a 5% drop. Large withdrawal declines have occurred on nine of ten trading days in a row. The total amount of silver derivative contracts in force greatly exceed the available above ground inventories, and even exceed many years of silver mining production. The run will spread, if not already, to the physical gold market. In a recent COMEX report, the physical delivery of maturing gold contracts so far in 2010 ran 39% higher than for the same period of 2009. Any gold and silver price rise (platinum too) from the supply squeeze could bankrupt some major banks, especially investment banks. In averting bankruptcy, they would fuel the gold rally, even with aid from governments and the monetary printing press. That is precisely one way that the gold price surpasses the $2000 mark, a bank squeeze. The global sovereign debt crisis is the latest manifestation of the credit crisis, with hidden demands for gold bullion. Further contagion could result in a worseing run on COMEX silver inventories. The most cautious, stodgy, and slow-footed investors will provide additional demand to push gold above $2000 and silver above $50, all in time.

Patrick Heller is owner of Liberty Coin Service in Michigan. He wrote in his newsletter, "If a this drain of COMEX silver inventories continues, it could literally be the spark that brings down the entire global financial system. Any indication that owners of paper silver may not be able to convert their paper into the physical product will only increase the demand to do just that." He describes publicity as being one factor to cause a further run on silver metal. See the Coin Update article (CLICK HERE).

◄$$$ CANADA SUFFERS A SHORTAGE OF SILVER COINS. THE KITCO VAULTS HAVE COINS AVAILABLE ONLY IN THE UNITED STATES FOR U.S. CUSTOMERS. THE SHORTAGE GROWS MORE ACUTE AT A CONTROLLED LOW PRICE. $$$

Ed Steer of GATA and the Casey Research Group reports. His expert coin information source shared recently that the Royal Canadian Mint is running two to four weeks behind on virtually all of their bullion products, especially the 0.9999 silver Maple Leaf coin. Also, Kitco has some important restrictions in force, regarding the purchase of silver coins and rounds. An official Kitco response was received. "Unfortunately, many of the Silver products we sell are currently out of stock for Canadians. As such, the items are 'Only Shipping to the US.' Certain products are 'Only shipping to the US ' due to our inventory at our Vaults in Canada. In other words, our inventory is too low (depending on the item) to accept any new orders from Canadian or International customers. As such, we would simply have sufficient inventory to sell the items to US customer[s] as we also have Vaults located in the United States from where our products are also shipped. The product will be once again available, when we receive a new shipment of inventory. In the meantime we suggest signing up for our Bullion Alert Service' which provides an e-mail notification as soon as a shipment arrives for the item(s) selected. Except for the 1000-oz good delivery bar, they are completely out of all silver inventory for Canadian and international customers. Only if you live in the USA is there anything available at all." Some interpret this news to mean that Canada has succumbed to pressure to cover the US shortage, obedient to the cartel like a captured vassal.

◄$$$ CENTRAL BANKS ARE DUMPING GOLD THIS SPRING AND SUMMER, A REVERSAL OF PREVIOUS MONTHS. EUROPEAN CENTRAL BANKS, DESPERATE FOR CASH, ARE RAISING CASH BY SELLING GOLD. $$$

The irony is thick. The central banks, predominantly in Europe, are validating the high value of gold by selling it. Rare among competing assets, this shiny asset has value and can be sold in a hostile financial market climate. The member nation central banks had been building up their gold hoards, or at least protecting them, but lately have been dumping them. Central banks have entered Gold Swap contracts. According to BIS records, central banks sold 349 metric tonnes of gold bullion since December, and raised $14 billion. The Gold Swaps enable the exchange of gold with the BIS in return for hard cash, under a stipulated agreement to repurchase the gold at a later date. It should be noted that these transactions do not directly affect the open gold market, since the gold does not enter the market. The contracts shift the locations of cash and gold bullion among the banks, with plenty of armored truck movement, the parent firms providing cash extensions. Nevertheless, it signals a shift in banker sentiment. One might conclude that it signals a setback for advocates of gold backed currency conception. My view is different. It means European central banks are obstacles to the grand Paradigm Shift that will launch a new global gold backed currency. They will go kicking and screaming, and thus be victims of the initiative, not beneficiaries. The central banks have almost no assets to sell of value, except gold (thus bearing great value). They are broke, holding toxic assets in their portfolio, led by cratering sovereign debt and lifeless mortgage debt, unable to sell their rotten paper to raise much needed cash. This is a case of a desperate man selling his family heirloom silverware, with nothing else but torn furniture and worn appliances. See the Business Insider article (CLICK HERE) or the Financial Times article (CLICK HERE).

◄$$$ THE SAUDIS ANNOUNCED A SIGNIFICANT EXPANSION IN THEIR OFFICIAL GOLD HOLDINGS LAST MONTH. THEY CALLED IT RECLASSIFICATION. THE SAUDIS MERELY CLOSED OUT A DECADE OLD LEASE TO THE ANGLOS, AS THE LONDON BANKERS COVERED THE LEASED GOLD WITH PAYBACK IN BULLION. THE WALLS ARE CLOSING IN ON THE US-UK GOLD CARTEL. $$$

Try not to laugh at the 'Reclassification' ledger item usage. A most bizarre ledger item was the surge in Saudi Arabia holdings in their published official holdings. They shot up by more than double from 143 to 323 tonnes in June. The Saudi Arabian Monetary Authority, perhaps taking guidance from Wall Street or London on twisted verbage, announced "Gold data have been modified from First Quarter 2008, as a result of the adjustment of the SAMA's gold accounts." The above is recounted from the June Hat Trick Letter Gold & Currency Report. My suspicion arose immediately, since reclassification sounds like accounting shenanigans to hide embarrassing events. Besides, no large volume purchases have made an impact with the news. So the Jackass contacted a gold trader with associates out of the Persian Gulf for verification. My message went "So the Saudis added a lot of gold without a bang echo or load of rumors. My suspicion is that the Saudis converted a raft of US/UK gold certificates from leases in the late 1990's back to physical gold bullion. It was all done quietly, under great pressure to the Anglos. The move by the Saudis was intended to prevent lost gold in the mix with criminal custodial actions. Of course, one cannot prove it. But that would explain the suspicious additions without huge open market purchases that would not raised big red flags and sudden jerky upward price movements. Just thinking out loud, like a criminal, about criminals. / jim" His response was concise in confirmation. He wrote, "Yes, the Saudis converted leases back to gold, spot on suspicion."

◄$$$ THE SPROTT PHYSICAL SILVER FUND HAS LAUNCHED, FOLLOWING THE GOLD FUND. SOME THINK THE SILVER FUND WILL ATTACK JPMORGAN. TIME WILL TELL WHETHER JPMORGAN SUFFERS WORSE NIGHTMARES. $$$

The Sprott Physical Silver Trust (symbol: PSLV) is out. It complements the Sprott Physical Gold Trust (symbol: PHYS) perfectly. See the SEC Edgar listing (CLICK HERE). The prospectus tells how investors can benefit from silver without the inconvenience that is typical of a direct investment in physical silver bullion, like vaults and shipping. Certain tax benefits come with capital gains treatment. To be sure, more physical pressure cometh for the cartel that relies on paper, having painted themselves into a metal corner. Sprott fund managers are on course to order $280 million for their new silver ETF. If any problems arise from securing that much, between 15 and 16 million ounces, some harsh publicity will come to light and come quickly. The fireworks of July Fourth, the time of the launch, could spread to the financial markets in earnest. For JPMorgan to suffer nightmares, they first need a conscience. They still operate a paper factory laced with fraud, but with full USGovt blessing and impunity.

The Sprott Gold Fund so far is a blockbuster success. It traded over Net Asset Value at the launch, a sign of heavy demand, which means over-payment for original investors. The COMEX and LBMA are squarely in the crosshairs for attack. Physical metal is the great vulnerability. The silver market is much tighter than gold. It as heavily interfered (manipulation, intervention, control) by JPMorgan. The LBMA has great challenges locating physical silver, a frequent topic in the news. Fresh incremental demand for over 15 moz silver is sure to present new problems not possibly met by more paper silver issuance by the criminals at JPMorgan who operate with impunity. The legal license they hold cannot touch the power of metal requirements. Their massive short silver position coincides with less actual deliverable, bringing the much grand short squeeze closer to reality. Soon even paper metal will show limits, since musical chairs are played behind the curtains.

Here are some observations on Sprott's latest offering from the Financial Post. They display ignorance of the paper certificate plague that wrecks havoc in the corrupted Exchange Traded Fund arena, where GLD gold has inadequate gold and SLV silver has inadequate silver. They both have supplies raided by London to meet futures contract delivery demands. They both have their shares abused to offset massive short contracts. In other words, the LBMA might have a claim on almost ALL the GLD & SLV metal. The Financial Post misses how conversion to metal for investors is a sign of honesty and integrity, and how dividends are a near total irrelevance. They wrote the following.

"[PSLV] is convenient. All the proceeds will be invested in physical silver. The silver will be stored at the [Canadian] Mint and the trust will be able to secure lower transaction costs than investors doing it themselves. But the fund is geared to those who like their income in the form of capital gain. The trust does not intend to pay any dividends. But one wrinkle is that once a month, unitholders will be able to redeem all or some of their units and receive physical silver. It is not immediately clear why a unitholder would want to do that, other than to provide unitholders with comfort that they can get their hands on the metal." See the Zero Hedge article (CLICK HERE).

The concentrated short positions always reveal the smoking gun of price manipulation. The '8 or Less' bullion banks are still short a grotesque 316.7 million ounces of silver, equivalent to 171 days of world production. In gold, the '8 or Less' bullion banks are short 28.9 million ounces of gold, equivalent to about 137 days of world gold production. These are called 'Concentrated Short Positions' for a legitimate reason, since they are concentrated within the gold cartel, where illicit activity is the norm, with government sanction.

◄$$$ JOHN EMBRY SPEAKS ABOUT GOLD. HE FINDS NO LONG-TERM VALUE TO THE USDOLLAR. THE MONETARY GENIE IS OUT OF THE BOTTLE. GOLD IS ON THE VERGE OF ASSERTING ITSELF WITH A SHOCKING PRICE RISE. HE GIVES A CRITICAL SLAP TO JEFF CHRISTIAN, A CORRUPTED SHILL. $$$

John Embry of Sprott Asset Mgmt is a fine gentleman who thinks clearly, sees the gold market clearly, and expresses his views clearly. We met in October 2008 at my final Canadian Conference and spoke for almost an hour. He was curious how the Jackass gained such insight and could make so many correct forecasts, not coming from the financial realm. My response was that statistical analysts are extremely bright people with a firm ability to analyze many markets, who do not bend toward corrupted data. Embry made numerous excellent points in his latest essay. He expects the COMEX to rise and restore its prestige, after having painted itself in the corner. He believes it will be forced to act or lose all credibility. He points out how the strong gold investment demand has taken over where the declining jewelry demand has left off. In fact, decline in jewelry demand is a telltale historical signal of a powerful gold bull market, the exact opposite message delivered by the mainstream controlled press.

Embry cites the new normal of more debt monetization, lacking any alternative, as austerity is a pipedream, the result from which will be an unlimited gold investment demand. USGovt debt has exploded, from 3.1% of GDP in 2007 to 9.2% of GDP in 2010. He lays into Jeffrey Christian of CPM Metals as implicitly a liar, after Christian stated that central banks have indifference to gold since such a small market, and after Christian misrepresented the 'Brown Bottom' sales of UKGovt gold in 1999, claiming the sale was long comtemplated, fully telegraphed in disclosure. In fact, not mentioned by Embry, the massive sale at the cycle low was orchestrated to bail out DeutscheBank. The big German bank was caught in a massive short position in gold. The key conclusion quote from Embry was, "I strongly suspect that JPMorgan's famous adage uttered a century ago that 'Gold is money and nothing else' is about to reassert itself in a big way and the resulting price impact is absolutely going to shock the skeptics on gold... The great news is that all manipulations ultimately fail, and when this inevitably occurs in the precious metals area, the upside impact is going to be huge." See the Sprott Investment Digest June issue entitled "USDollar's Collapse Inevitable" by John Embry (CLICK HERE).

◄$$$ PORTER STANSBERRY MAKES COMPELLING ARGUMENTS ABOUT THE UNSTOPPABLE RISE OF GOLD. HE CALLS GOLD A HEDGE AGAINST CATASTROPHE. HE ANTICIPATES A COLLAPSE OF THE USDOLLAR ROLE AS RESERVE CURRENCY. THE USGOVT DEBT CANNOT BE REPAID, AND EMERGING ECONOMIES HAVE GROWN SO MUCH. HE EXPECTS GOLD TO RETURN AS A BANK RESERVE FASTER THAN PEOPLE THINK. $$$

In an interview with The Gold Report, Porter Stansberry lays it out succinctly and in a manner that only a compromised intellect can deny. He said, "We were telling our readers to buy gold beginning in 2001 and 2002, but that was simply because we thought the US dollar had become unsustainably strong. We expected it to fall, and since gold is inversely correlated to the dollar and is priced in dollars, our recommendation was just based on value. As inflation was heating up, it made sense as an inflation hedge too. And now we think gold makes sense as a catastrophe hedge. What most people do not understand is that as the world's reserve currency, the US dollar is considered the highest caliber reserve by central banks and private banks around the world. When foreign countries want to increase their money supply, when private banks want to expand their loan portfolios, they acquire dollars to have in reserve. That has powered an enormous current account deficit and an enormous expansion of government debt in the United States. The United States is just no longer a big enough economy to be the world's only reserve currency anymore.

This entire [monetary] system is going to collapse, and there are two compelling reasons why. First, the US government clearly cannot afford these debts. Total government debt outstanding has surpassed $13 trillion, more than 100% of GDP. There is no question that it cannot be repaid. But secondly, there is also no question that the world economy needs other reserves because the emerging markets have grown so large and other economies are now much bigger in relation to the US than they were 20 years ago. We need a whole new standard of reserve currency... Throughout the history of mankind, even into the 1900s, gold was the only thing all trading partners could agree upon and rely upon. There is no doubt in my mind that gold will become the reserve currency once again. It will drive demand for gold way up, and therefore the price of gold will go way up. There is no way the market has begun to price in that change going forward, and I see it as inevitable... My bias is that it is going to happen sooner than anyone believes possible, but that still may not be for another five or 10 years. More and more of the US government's creditors are already complaining about Quantitative Easing and the country's debt load. And the Obama Admin has been completely cavalier about the size of these debts. They are continuing to mount, to $1.6 trillion."

◄$$$ THE PAULSON FUND WAS HIT BY $2 BILLION IN REDEMPTION DEMANDS. SO THE CRIMINAL FRAUD INVESTIGATION ON PAULSON, RELATED TO MORTGAGE BONDS SOLD BY GOLDMAN SACHS, HAS SOME COLLATERAL DAMAGE TO GOLD. $$$

Absolute Return+Alpha reported that the major $33 billion hedge fund managed by John Paulson has been significantly drawn down. The fund had participated in the Abacus transactions with Goldman Sachs, the subject of legal prosecution and civil lawsuits. Frightened investors removed $2 billion from redemptions by the end of June. Mortgage bond assets and gold assets were mixed within the same fund. The fund has sported a horrendous performance in June. Regardless, widespread liquidations have come to the Paulson fund's gold portfolio, which accounted for 30% of the its total assets. The primary vehicles used were the controversial Exchange Traded Fund (GLD), gold mining stocks, and other assets. See the Zero Hedge article (CLICK HERE).

◄$$$ CHINESE GOLD & SILVER PURCHASES CONTINUE TO RAMP UP FIRMLY. VAST PUBLIC DEMAND MIGHT EXCEED OFFICIAL CHINESE GOVT GOLD PURCHASES. $$$

China is the site of the second largest gold demand globally. Their gold demand in terms of gold volume traded on the exchange rose a sturdy 59% in the first six months versus the same period in 2009. The volume rose to 3174.5 metric tonnes, according to Song Yuqin, vice general manager at the exchange. Silver trading volume skyrocketed more than five-fold during the same period. Citizens are concerned about stock market turmoil and unstable property prices, amidst a backup of European sovereign debt market instability. Then there is gold demand. Hou Huimin is deputy secretary general at the China Gold Assn. He said, "I expect China's gold demand to rise by 11 to 12% this year to 440 to 450 tonnes, because Chinese investors have shown their willingness to buy more when prices are on the rise. I expect prices will rise over the remainder of this year and next year." The gold response is widely seen as a direct consequence to the Chinese Govt crackdown on property speculation. They are overheating, a big tail on the US bubblicious monetary policy. Some policy measures announced after a reported 11.9% economic expansion in 1Q2010 were to raise the minimum mortgage rates and some down payment ratios. Officials are considering a trial property tax. Details on actual gold demand are quietly staggering. Sales of products such as gold bars and coins by China National Gold Group Corp rose 40% in the past six months. The group possesses the nation's largest gold deposit. Chinese gold output should rise about 5% this year, lengthening China's lead position as the world's largest producer. Notice the demand growth outstripping the supply growth in output. China produced 313 tonnes of gold last year, according to a group executive. China is unique among nations, with public gold demand from citizens annually at a volume that eclipses even the government purchases. See the Business Week article (CLICK HERE).

◄$$$ RUSSIA BUYS A BUNCH OF GOLD. IMAGINE HOW MUCH GOLD THEY ARE PURCHASING OUTSIDE THE OFFICIAL REPORTED CHANNELS. THE KREMLIN WILL NOT BE HONEST WITH THE UNITED STATES. $$$

The Russian Govt continues to accumulate gold bullion in its official reserve holdings. They purchased 27.6 tonnes of gold in the last quarterly reporting period, which moved its total to 668.6 tonnes. According to the latest IMF data, in the period between April and May, the Russian Govt added another 22.5 tonnes, bringing its May total to a new record of 703.1 tonnes. The gold reserve holdings data was presented by the World Gold Council. While Russia and China have been adding gold reserves, the IMF has been drawing down. The East accumulates wealth, while the West removes wealth, a hallmark signal to the global Paradigm Shift. The gold holdings at the IMF fell by 15.25 metric tonnes (490,286 oz) during April and May. Reserves of gold at the IMF were 2951.58 tonnes at the end of May versus 2966.83 tonnes at the end of April. Global central banks have grown in their appetite for gold in reserves, seen as a prudent counter to the increasingly toxic sovereign debt they hold in extreme volumes. The IMF is on course to anger Eastern nations who boast growing gold hoards and growing distaste for Western Govt debt. The IMF has given indication that they will continue to sell the remaining 137.5 tonnes on-market as opposed to off-market transactions with other central banks, a step to anger Asia immensely. The consistent but mangled IMF policy to sell gold, raise cash, aid the central banks, but keep the gold price low is inviting a sharp angry response.

◄$$$ MEDVEDEV DISPLAYED A GOLD COIN AS A PROPOSED NEW GLOBAL CURRENCY AT THE G-8 SUMMIT. IMAGINE A HOT POKER UP THE WESTERN BANKER RECTUMS. THE RUSSIAN PRESIDENT IS GIVING A SNEAK PREVIEW OF THE NEW NORDIC EURO, BUT WITH A NAME CHANGE SWITCHAROO FOR PRESENTATION PURPOSES. $$$

Whether intended as a preview of the New Nordic Euro currency, backed by a gold component, or a rehash Straw Man from the old cabinets at the Intl Monetary Fund, the item on display by Dmitry Medvedev left the Western bankers with a zinger, something to keep in mind, something to keep them up at nights. Some regard the new currency (manifested in coin) to be the Special Drawing Rights from the IMF, the bastard basket concoction of existing major currencies. The unmistakable part of Medvedev's message was the clear giant stride desired AWAY FROM the USDollar as global reserve currency. My personal belief is that the coin symbolized a chip on the currency table, and a hint of its laced gold component. The Russian President has called for a global currency, which has not yet gained much traction from G8 finance ministers. His proposals served as a repeated urge of his message to the April G-20 meeting in London, when he pushed for a supra-national currency. He proudly displayed the coin, which bears the English words "United Future World Currency" to journalists at the summit finale in the Italian town of L'Aquila. Why would he be so enthusiastic or proud, if not for his participation in the new currency initiative? Medvedev has put visible public weight behind the IMF SDR movement and its trivial minimal showcase planning. He has put secret private weight behind the New Nordic Euro currency movement and extensive planning. The hint on the coin is its resemblance to the Euro Coin. It features five leaves for the five continents, much like the five Olympic rings. By the way, no doubt in my mind that Putin is working on the strategic development and planning with Germany on the New Nordic Euro. It is that important to the strategic balance of global power. Putin is all about pursuit of power, but not dominant power, only more balanced power in healthy interdependence.

Russia and China have been vocal advocates of diversification away from the US$-based global currency system. Medvedev has repeatedly called for creation of a mix of regional reserve currencies as part of the drive to address the global financial crisis, while showing distrust and scorn for the USDollar's future as a global reserve currency. Such propositions fit within the current monetary framework. He blames the USDollar for much of the global financial instability, with economic repercussions. French President Nicolas Sarkozy at the summit joined the band, urging that "We cannot stick with just one single currency." Earlier Medvedev handed out the coin as gifts to leaders, pushing the notion that leaders were beginning to think seriously about a new global currency. Medvedev said, "In all likelihood something similar could appear and it could be held in your hand and used as a means of payment. This is the international currency... Here it is. You can see it and touch it. [A global currency] concerns everyone now, even the mints. [The sample coin] means they are getting ready. I think it is a good sign that we understand how interdependent we are." The nature of the Straw Man SDR is to take the movement off the USDollar. Then comes the gold backed currency after the locked grip of the USDollar has gone.

 

Observe the pretty shiny coin. It symbolizes an end of USDollar Tyranny. See the Breitbart article (CLICK HERE) and the Bloomberg article (CLICK HERE). The USDollar slowly is being rejected on a global basis. It is regarded as a license to defraud, a license to counterfeit, a license to wage war without cost, and a license to float an irresponsible economy on credit lines without proper responsibility.

◄$$$ READING MATERIAL $$$ Check out the outstanding article entitled "What's Behind the Global Flight to Gold?" by Gary Dorsch (CLICK HERE). He provides an historical background on gold with up-to-date references to the important corners of the globe. The gold price is tracking sovereign debt levels. His work is consistently top shelf.

GOLD PRICE IN HOLDING PATTERN

◄$$$ GOLD IS NOWHERE NEAR A BUBBLE. ON A MAJOR NATION BASIS, THE GOLD VALUATION RELATIVE TO STOCK & BONDS IS A MERE 7% RATIO. FOR NASTY DANGEROUS BUBBLES, REFER TO THE USTREASURY BOND, EUROPEAN SOVEREIGN BONDS, AND MORTGAGE BONDS. GREAT WEALTH WILL BE LOST IN GOVERNMENT BONDS, JUST LIKE THE MORTGAGE BOND WRECKAGE THAT HAS ONLY PLAYED OUT 10% OF THE WAY. $$$

The gold futures option contracts are telling a very intriguing story. The open interest of leveraged gold options far out are surging. The conclusion is simple. Some smart money is placing some serious chips onto the golden squares at the casino, but later in 2011, not this year. Gold Core reports, "Data from the gold options market shows that smart money believes that gold will go higher in the coming months, and that the recent fall in prices may be another correction and consolidation prior to another move up in prices. Open interest in options, which allow holders to buy gold at $2000 an ounce by December 2011, has surged a massive 11-fold on the Comex since May 11th. Open interest to buy at $1500/oz by the end of the year has fallen by 33%, which suggests that gold market participants remain unsure of gold's short and medium term prospects but confident of higher prices in the long term." An article was put together, actually more like a laundry list of analysts. Each believes the gold price will rise to great heights. A parabolic move is highly likely between $2500 and $15,000 per ounce. See the GoldSeek article (CLICK HERE).


◄$$$ GOLD INDICATORS HAVE TURNED STRONGLY POSITIVE, AS CERTAIN PHYSICAL FACTORS HAVE STALLED, LIKE SCRAP SALES. $$$

Sentiment Indicators are pointing very favorably for gold & silver, after a few months of consolidation and meandering. The sentiment indicators tracked by Mark Hulbert have been shown to be particularly accurate for forecasting moves in the precious metal prices. As usual, they are contrarian in nature. The MarketVane Bullish Consensus for gold lost a point to 63% and the HGNSI slumped 14.3 points to 9.2% in a recent track. This Market Vane index has not been this low since August 28th 2009, before gold staged a major move of over $200 per ounce, logged in October and November. The HGNSI is rarely this low. A notch in the HGNSI below 30 signals a bull move in gold & silver. Thanks to JB Bullion report for his note. He also provided news on physical demand from Standard Bank. They wrote, "With gold below $1200, the demand response from the physical market has swung from resistance to strong support, as gold selling and scrap sales have dried up. Our Standard Bank physical gold index has bounced into highly positive territory." Scrap is an excellent marginal signal. See the Truth in Gold article (CLICK HERE).

◄$$$ GOLD MINING STOCKS ARE POISED FOR A BIG BREAKOUT MOVE UPWARD. JUST ONE MAN'S OPINION, BUT A FELLOW WITH A STRONG TRACK RECORD. $$$

Chen Lin is a golden boy in mining stock investments. He has embarked on a path that has borne 200-fold profits since December 2002, through shrewd value picks and fine market timing. He is on record as calling for gold producer shares to make a move, as they are poised for a breakout. Chen wrote, "Every gold producer is making an incredible amount of money, and the market does not appreciate that much. That is a very interesting phenomenon. One thing will happen, either gold has to come down significantly or gold shares will go up significantly. I believe it is the latter." Much appreciation to The Gold Report for the Chen Lin interview.

◄$$$ ACKERMAN BELIEVES THE CHINESE YUAN DECISION TO REVALUATE UPWARD WILL HARM THE USDOLLAR AND GIVE GREAT LIFT TO GOLD. THE TRIGGER TO PULL IS THE YUAN CURRENCY AND THE DEVICE IS THE EXPORT TRADE. WE ARE WITNESSING THE EARLY STEPS FOR CHINA TO STEP ASIDE FROM A TOTAL USDOLLAR DEPENDENCE. IN DOING SO, THEY WILL SACRIFICE SOME WEALTH. $$$

Rick Ackerman is a sage analyst. In past Hat Trick Letter reports, he has been criticized for his gloomy outlook regarding deflation, which continues to be misused in terminology. He has been a bit too bearish on the gold price as a result, seemingly discounting the extreme monetary inflation that the falling asset climate has triggered by pressured bankers. He commented on the Chinese dilemma. They have too many US$-based bonds held in reserve. They want a higher Yuan currency, but that pulls a small group of plugs from under the US$-denominated vat. They wish for Chinese wages to grow, but that will cause higher export prices, and lower imports into the United States and Europe. They want more independence from the USDollar, but they have built their entire reserves and sovereign wealth funds using it. They have invited a cancer into their house in order to facilitate an industrial expansion in the 2000 decade. Times are about to change, with the USTreasury downgrade, announcement of a Yuan upward revaluation, and tighter policies toward the real estate bubble. Beijing has given loud signals of turning a major policy corner. Ackerman puts his perspective on this enigma facing China. He clearly calls the United States a worse case than Greece, if not for the USGovt free pass with the Printing Pre$$, an abused privilege. Global acceptance of the USDollar enables its abuse, and keeps the USDollar from crashing on its own merits. Its financial footing is beyond horrible. It resembles a Third World nation.

Ackerman wrote, "Imagine everything the United States and the rest of the world buys from China costing more. Then imagine China's exports falling as a consequence, leaving the country with far fewer dollars to buy USTreasury debt. Well, it is no longer something that needs to be imagined, for that is exactly what China intends. With the nation's foreign currency reserves edging toward $3 trillion, most of that in US dollars, it was time for China put an end to a greenback support operation that had long since grown beyond the bounds of sanity. That is not to say, however, that Chinese support for the dollar has outgrown its usefulness, for the arrangement has given the USTreasury the appearance of solvency, freeing up easy credit for US consumers with an insatiable hunger for Chinese goods.

All of that is about to change though, and with it the status of the dollar as the world's reserve currency. We find it remarkable under the circumstances that, a week after China's decision, the dollar has yet to implode, nor Gold to erupt, presumably with sufficient force to leave the $1300 threshold behind in a cloud of dust. It is difficult to think that both of these things will not occur, although it may take a shift in the sheep-like thinking of money managers, since they are deeply conditioned to believe that the Dollar and Treasury paper are 'Safe Havens' even though a US without recourse to printing press money would look far worse than that supposed financial basket case, Greece."

◄$$$ TYLER DURDEN OF ZERO HEDGE EXPLAINS THE SELLOFF IN THE FIRST FEW DAYS OF JULY, BASED LARGELY UPON EUROPEAN ASSET LIQUIDATIONS. GREAT DISTRUST LURKS BETWEEN BANK COUNTER-PARTIES IN A HEAVILY NESTED INTER-CONNECTED BANKING SYSTEM. END OF QUARTER BOND FUND WINDOW-DRESSING CAUSED SHORT-TERM BOND REPO DEMAND THAT SET OFF A CHAIN REACTION. $$$

Tyler Durden is a pen name for the editor of Zero Hedge. In the Hat Trick Letter, the website is quoted frequently. It is loaded with gems. My great respect for the website is showing, as it is probably the premier website for keeping tabs with financial market crisis details on a daily basis, especially with shorter clips. Zero Hedge offered many articles with great depth as to the complexity of certain markets. Financial engineering has rendered the US markets a complex form of layered structures and hidden planks, impossible to fully comprehend even for the most adept afficionado. Hats off to ZH, which has my utmost respect. Durden is a true warrior. A private conversation with another person with deep experience on Wall Street revealed that Tyler Durden is actually an extremely smart fellow with many years of Wall Street firm experience, deep in the caverns, with numerous excellent deep sources and contributors. When Durden talks, people should listen. The name is taken from an avant garde movie entitled "Fight Club" with Brad Pitt and Edward Norton. The photo of Durden on articles shows a bloody face, a fitting symbol for a Wall Street insider veteran.

Durden offered a perspective on the plunge in the gold price in the last month. In a springtime Gold & Currency Report, my forecast, loosely stated, was for the Euro to find support near the 120 mark and push higher after some incidents and broad salvage initiatives. My expectation was for a short cover rally to occur somehow some way. Bear in mind that my Euro forecasts had been incorrect regarding defense at the 135 mark and later at the 127-128 mark. The fringe of Europe took control of the Euro currency, as the core of Europe worked more slowly to cut the Latin fat off than expected on my end. The politics of finance is a slow process, first to defend status quo, second to pursue alternatives during crisis. The Euro simply fell too far not to present an opportunity to orchestrate a short cover rally off 120. Also, the Euro fell so much, that its relative price to structural forces simply went too low to be sustained. It will probably go much lower, but only after the 130 mark is tested.

Durden explained that gold fell below $1200 as asset liquidations spread like wildfire. Trust in counter-parties is vanishing in Europe. End of quarter window dressing by bond fund managers resulted in a surge in demand for 3-month Euro Repo. That surge ignited a fire that spread, with the contagion fueled by distrust within a highly interwoven bank & bond structure across Europe. Ever since the Greek fires began inside the PIIGS pen, the Europeans have come to regret their inter-connected nature. That cross investment of debt has been covered in the past Gold & Currency Reports, as each nation owns each other's debt in non-trivial fashion. The short covering in the Euro should be viewed as very negative for the future prospects of the Euro, due to its unsustainable strength and the lack of new investment funds to support the move. Hence, a USDollar rally might be setting up, but it is again a Death Rally based in systemic failure. The world struggles to discard the USDollar.

Durden wrote, "An ongoing topic discussed recently is the slash and burn ongoing in Europe, as banking counter-parties have exactly zero confidence (and less with each passing day) in their counter-parties. The backstop by the Euro Central Bank of everything (for now) is the only thing keeping the system from collapsing. Yet with the EuroCB now at over $1 trillion in backstop funding for European banks, there will be a point beyond which not even the central bank's credibility will be enough. Today [July 1st], we are seeing a spike not only in Libor and Euribor (both Euro denominated), but most notably in the 30-day Repo Rate. The result is a scramble to fund EUR positions. Whether the catalyst was this morning's 6-day ECB liquidity providing market operation at this point is immaterial. The outcome is one of the biggest surges in the EURUSD [Euro rate per US$] in the history of the pair, which at last check was fast approaching $1.25. This EUR surge is nothing more than a liquidity scramble and should in fact be interpreted as EUR adverse and is indicative of an even worse funding pictures in Europe and among European banks."

Durden wrote later the same July 1st day, saying "The European liquidations we discussed earlier [above], courtesy of the Euro Central Bank Main Refinancing Operations and the Repo Rate spike, which resulted in a massive EURUSD covering squeeze, have followed through into industrial commodities such as oil and lastly into gold. And as liquidations are merely emblematic of a broken liquidity system (as the name implies), the unwind behind the scenes must be fierce. On the other hand, as the only recourse to prevent an all out systemic collapse should the deflationary trend continue, from Ben Bernanke's perspective, is just to print more money and thus solidify the position of the precious metal as undilutable and a currency which cannot be backed with toxic Mortgage Backed Securities and Greek Sovereign Bonds, today's selloff is a much welcomed respite for the commodity which traded at record highs as recently as this week. Also, our recent disclosure of precious metals market manipulation via disclosed COMEX-OTC arbitrage by such former behemoths as AIG then (and presumably JPM now), should only add to your comfort that once the finger on the scales is removed, the natural reaction will be that of a coiled spring." He strongly implies much higher gold prices are coming in the future, after the Euro short cover rally loses its gusto. See the Zero Hedge articles (CLICK HERE) and (CLICK HERE).


Thanks to the following for charts StockCharts,  Financial Times,  UK Independent,  Wall Street Journal,  Northern Trust,  Business Week,  Merrill Lynch,  Shadow Govt Statistics.