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

* Monetary Shrapnel
* Certainty of a Concealed QE3
* Heightened Risk for USGovt Debt
* USDollar Decline & Nasty Effects
* Big Banks Torn Asunder
* Flagging USEconomy Demands QE3


HAT TRICK LETTER
Issue #87
Jim Willie CB, 
“the Golden Jackass”
12 June 2011

"One should constantly remember that no solution to the financial crisis has been installed, nothing fixed, no big banks liquidated, no end to monetary inflation, no end to outsized USGovt deficits, no change of Goldman Sachs running the USGovt finance ministry, no discharge of big bank home inventory, no end to secretive subterranean support of stocks and bonds, no revival of the housing market, no return of US industry from Asia, no prosecution of Wall Street for multi-$trillion bond fraud, no end to money laundering of narco funds to Wall Street banks, no interruption to the endless costly wars, no end to the propaganda obediently pumped out by the US press & media networks. Nothing has changed except that many commodity prices are lower, including Queen Silver." ~ the Jackass

"The day the USCongress agrees to raise the US debt ceiling will be the day that fiat money dies. Sometime between today and the 2nd August 2011, the global debt bubble will implode, launching Gold & Silver prices towards levels not even imagined at this time. In 10 weeks or less, the Shit Is Going To Hit The Fan." ~ Greg Maurer (editor of Gold Harvest Under a Silver Moon)

"The United States is the largest debtor nation in the history of the world. The debts are going through the roof. Fed Chairman Bernanke is a disaster who has never been right about anything. I hope he does not come back with QE3, but that is all he knows. They are gonna bring it back because Bernanke will be terrified and Washington will be terrified. There is an election coming in November 2012. Washington is going to print more money. I want to buy more Silver because Bernanke is a disaster. The only thing he knows to do is to print money." ~ Jim Rogers (who believes after the Fed ends QE2 this month, it may come back under another name)

"It is the Fed's problem, rather than Greece's impending financial collapse, that should be closely monitored by goldbugs. This is not to belittle European difficulties and those of the European Central Bank. But in a strict monetary sense, the ECB is not so far down the monetary inflation route as the Fed, yet. It is the Fed that has already expanded its money quantity explosively and is struggling to find further monetary fuel to lift the economy. It is the Fed that is locked on a course of accelerating monetary inflation, as those monetary base statistics show." ~ Alasdair Macleod (economist and former banker, currently Head of Editorial Standards & Compliance for BBC)

"We believe that the devaluation of paper money cannot be stopped and is ongoing. We are at the end of a cycle. The middle class, which act as an important buffer against boom & bust cycles in the economy, needs to be wiped out before the financial imbalances can sort their effect. They are not really addressing the structural problems that have brought us to the situation we are in. In fact, what the politicians are doing is exhausting the system for the inevitable breakdown." ~ Gijsbert Groenewegen (Silver Arrow Capital)

"You should be scared. I am scared. You cant not be scared. You cant look at what happened in the run-up to 2008 and see how it is not going to repeat itself, given what we have done." ~ Neil Barofsky (former TARP Fund Inspector General)

Nature Watch: Check out an awesome display of the Puyehue Cordon Caulle volcanic chain, its first eruption in 50 years in Chile. It was unique in that it contained a volcano with lightning inside the plumes, a first in my lifetime of observations. The burst occurred 575 miles south of the capital city of Santiago, with effects felt into Argentina. See the UK Daily Mail article (CLICK HERE) complete with a serious of fabulous photos.

Editor Note: Starting with the July Hat Trick Letter, a new user database system is planned for installation. The product has been selected. It has some nicer features than the one used until April. Starting in July, no common username & password will be shared any longer. The past three months involved a temporary method that assured reliable access without interruption. For those subscribers who have been onboard for a longer time, like before April, you will go back to the old username & password formerly used. The key rule for seven years of the newsletter has been for somebody named John Goodfellow of 542 Evergreen Street to have (username = jgoodfellow) and (password = evergreen). Some have entered post office boxes for the address. A typical example would be James Badfellow of POBox 3255 to have (username = jbadfellow) and (password = pobox3255). Returning subscribers would have a "2" or "3" at the end of their usernames in sequence to new orders. The newer subscribers since April have not been assigned a personal U&P passcodes yet. They might anticipate theirs correctly. A handy reminder system will enable a subscriber to enter the email address on the Members area signin authorization webpage and have sent from the system to that address a reminder of the valid U&P passcodes for usage. No more emails to the Jackass for reminders. My hope and expectation is to install the new database system at the end of June, after most everybody has read the June reports, and well before the July reports are published. That will give all people time to validate their U&P passcodes before downloading the July reports.

MONETARY SHRAPNEL

◄$$$ THE OBAMA ADMIN ECONOMIC COUNSEL IS IN TOTAL DISARRAY, A SINKING SHIP. ANOTHER ADVISOR DEPARTS. GOOLSBEE FOLLOWS A LIST OF OTHER UNDISTINGUISHED CHARLATANS WHOSE TENURE WAS EQUALLY BRIEF. THEY HAVE NO IDEA HOW AN ECONOMY WORKS OR GROWS. INFLATION AND BANKER WELFARE, LACED WITH WAR, ARE ALL THEY KNOW. $$$

Lawrence Summers presided over the White House Council of Economic Advisors, a sorry bunch, from the beginning of the Obama Admin in January 2009 until yearend 2010. He engineered the vacant purposeless stimulus package. When monetary hyper-inflation seemed the destructive path without respite, Summers resigned. Stated reasons mean nothing. He returned to a secure post to plan global conquest by bankers. Another significant departure was Peter Orszag from the Office of Mgmt & Budget, who left after drowning in red ink. Following Summers was Christine Romer, whose matronly style and simplistic explanations of strategy defied depth. She returned to Stanford University. Succeeding her was the elevated Austan Goolsbee, a key advisor to Obama during the campaign, full of hope never to find either sunlight or water. Goolsbee just announced his departure, to return to the University of Chicago, where other hack USFed governors hold tenure. He will collect at least a $465 thousand salary, after a raise from that level. Anyone who believes Goolsbee is worth one third of that should consider buying my pet Keynesian rock for $100, a sure bargain.

The White House patted Austan on the back as he walked out, claiming "the Council of Economic Advisors [under Goolsbee] focused on policies related to small business, education, innovation, and competition, which are essential to ensuring long-term economic growth. Over the past several years, he has helped steer our country out of the worst economic crisis since the Great Depression. Although there is still much work ahead, his insights and counsel have helped lead us toward an economy that is growing and creating millions of jobs." What a crock of dung, as the USEconomy is suffocating under poor education, heavy government regulation, taxation on small business on health care, and more. It is stuck in reverse as a terminal recession gathers momentum and backward speed. The economist helm at the White House is from a sinking ship, bouncing off massive icerbergs, as the national economy proceeds inexorably toward systemic failure. The vacated post is a dead end job, as the Fascist Business Model guts the soul of the nation, while the monetary inflation burns capital, and the collectivism that failed the Soviet Union is attempted on US soil. Sound economic policy is in extremely short supply. Opportunity for ideas does not exist. Heretic ineffective obsolete policy that directs business investment to Asia is plentiful. The length of service for an advisor is often seen as an indicator for effectiveness and cohesion. This administration has neither, since a queer brand that mixes failed Keynesian methods with destructive Marxist practices. See the Daily Caller article (CLICK HERE).

◄$$$ CHARITY ORGANIZATIONS IN THE UNITED STATES ARE USUALLY A FRAUD. CHECK OUT THE MAJOR CHARITIES AND HOW THEY ENRICH THEIR EXECUTIVES WHILE DOING LITTLE TO COMPLETE THEIR MISSION. THE SALVATION ARMY IS THE EXCEPTION. $$$

Nothing is sacred in the United States. Sports have drug doping for performance enhancement. The movie industry has been corrupted to support the smokescreen of the War on Terror, and more broadly to support the national mindset in sympathy toward war. The full account of Hurricane Katrina is a horror story, with certain key levies blown apart with explosives, and the hurricane itself steered by means of the HAARP weapon. The Central Plains endless storms in May were yet another exercise in that powerful atmospheric weapon, the demons playing harps. The 911 charity funds were unmasked as frauds by the end of 2001 sadly, with little support going to victim families, denied even the satisfaction of investigative followups. Before opening wallets and purses for any disaster, even a crisis at a national level, whatever the catastrophe, keep some ugly facts in mind.

The American Red Cross President & CEO Marsha Evans earned a salary for the year 2010 of $651,957, plus all personal, medical, and pension expenses. Less than 10 cents of any donated dollar actually goes to the cause. The United Way President Brian Gallagher received a $375,000 base salary, along with numerous personal and family expense benefits. Less than 12 cents of any donated dollar actually goes to the cause. The UNICEF CEO Caryl Stern earned $1.2 million per year plus all living & and housing expenses, including a Rolls Royce car. Less than 15 cents of any donated dollar actually goes to the cause. However, one outfit stands out above all the rest. The Salvation Army Commissioner Todd Bassett received a salary of only $13,000 per year (as in thirteen thousand), plus housing, for managing the $2 billion dollar organization that actually feeds hundreds of thousands of people each day. A total of 96 cents of all donated dollars go to the cause! A detail on the poor of New York City was astonishing to hear. Fully 1.2 million meals per day are served at NYCity soup kitchens for homeless and the poor. Beware of the big popular funds, mostly crude blatant frauds designed to enrich their executives.

◄$$$ USFED NOMINEE PETER DIAMOND FINDS HIS NOBEL PRIZE INSUFFICIENT FOR APPROVAL TO THE USFED BOARD. WELCOME TO THE SYNDICATE, WHERE LOYALTY, VILE PLOTS, COZY CONNECTIONS, AND RESUME ITEM FRAUDS ARE THE BEST QUALIFICATIONS. $$$

The USFed Board nominee Peter Diamond has discovered that his Nobel Prize in Economics is not worth much. Diamond pulled his nomination from President Obama in disgust after obstacles arose from the exclusive Goldman fraternity on Wall Street. His credentials cannot seem to buy a seat on the august board, which decides much like the Soviet Politburo the price of money. He sounded off, saying "Last October, I won the Nobel Prize in economics for my work on unemployment and the labor market. But I am unqualified to serve on the board of the Federal Reserve, at least according to the Republican senators who have blocked my nomination. How can this be?" Observers might question that value of a Nobel Prize, which was bestowed upon the conventional dull blade Paul Krugman of the New York Times. These Keynesian  hacks are like sirens, singing to lure sailors to their financial death on the rocky shores. Observers might regard the prestigious award as a testament to groupthink, which produces failed policy. Harken back to one of the grandest travesties in modern history, when Obama received a Nobel Peace Prize in the midst of two wars, one to confiscate oil and promote contractor fraud, the other to secure a narcotics monopoly. Since that award, the Jackass has given no respect to the entire Oslo institution that seems badly coopted. Other observers might rightfully, in my opinion, conclude that the only members desired for entry into the USFed castle will be those who are given syndicate nods. The Goldman Sachs pedigree is pre-requisite, not excellence. See the Zero Hedge article (CLICK HERE).

◄$$$ HIGH FREQUENCY TRADING CONTINUES WITH LARGE VOLUME TO CAPTURE SMALL PROFITS PER SHARE, AND DONE WITH SMALL VOLUME TO CAPTURE LARGER PROFITS PER SHARE. NOTHING HAS BEEN RESOLVED OR PROSECUTED IN A FULL YEAR, BY ORDERS FROM WALL STREET, WHICH FINDS THE PRACTICE PROFITABLE. THUS THE STOCK EXCHANGE MERGERS. $$$

High Frequency Trading and stock manipulation has once more been caught on tape. Courtesy of Nanex, more prima facie evidence has been provided on algorithm trading. It showed front running an order, testing for the presence of other algorithm players, and snatching non-displayed orders in predatory style. Zero Hedge showed an example in detail of Xcel Energy (XEL.PR.G). In the span of half a minute, 430 shares were bought up on the way up from $90.5 to $102.25, and then sold off once again in another 10 seconds, hitting all bids as soon as they appeared. This stock is not some popular HFT high volume darling that trades millions of shares per day, suddenly to be swarmed by blasts of tens of millions in shares to stuff quote packets. The outcome of the HFT activity is that very few investors trade on the open exchanges anymore, with 75% to 80% of trade volume coming from HFT activity among the Wall Street firms playing push the rock up the hill. They have become the province of Sigma X and other dark pools. Their 80% dominance in trade volume has motivated the legacy monsters like the NYSE and NASDAQ to buy each other in incestuous marriages that hide their frequent rape incidents. Of the 83 global stock market venues, all of which permit some permutation of millions of stock manipulation strategies. See the Zero H edge article (CLICK HERE). Just one more log on the Fascist Business Model bonfire.

◄$$$ MARK MOBIUS HAS WARNED OF A FINANCIAL CRISIS REDUX. HIS ARGUMENTS ARE AS BRIEF AS THEY ARE POWERFUL. NO SOLUTIONS HAVE BEEN PURSUED. THE USDOLLAR IS NO LONGER A SAFE HAVEN, A NASTY CONSEQUENCE OF THE USFED MONETARY INFLATION. $$$

Mark Mobius of the Templeton Funds expects much greater volatility in the coming weeks and months. He gave a stern waring that crisis will return with a vengeance. Mobius expects the financial crisis will proceed naturally into the next chapter, guaranteed by wrong reckless policies. He argues several grand errors persist. The leaders have not solved anything in over two years. The very large (Too Big To Fail) banks have grown even bigger, still protected, even more insolvent in his opinion. The dangerous derivatives market has grown even larger. He directly accuses the regulators of still not regulating, as they take their orders from Wall Street dons. He guesses that derivatives total 10 times the annual world GDP in a dangerous overhang. The recent developments in the Middle East and Japan have shown the USDollar currency and its main USTBond vehicle are no longer considered safe havens anymore, he warned. This is a major change in the financial winds. He reminds that foreign institutions are diversifying out of the USDollar, discouraged by the Quantitative Easing programs. The USFed is stuck doing basic monetary hyper-inflation. Mobius pointed to derivatives, the financial network of futures, options, and swaps that have entangled almost all the world's major banks. He concluded, "There is definitely going to be another financial crisis around the corner, because we have not solved any of the things that caused the previous crisis." Conditions are much worse than in summer 2008.

◄$$$ GOLDMAN SACHS WILL NOT FACE CRIMINAL PROSECUTION FOR MORTGAGE BOND FRAUD BECAUSE OF ITS STATUS. THEY ARE TOO BIG TO FAIL. ANY PROSECUTION IS SEEN AS A THREAT TO THE FINANCIAL SYSTEM IN THE UNITED STATES. REGARD IT AS LICENSE TO COMMIT $TRILLION FRAUD. $$$

One must be reminded of the George W Bush speech in 2005 that $50 billion missing funds from the Iraq Reconstruction Fund was an acceptable loss. Obviously, if not directed to the Halliburton till, it would not be so acceptable. Fast forward to the mortgage bond fraud chapter from 2004 through 2008. The prosecution has been totally nonexistent. The agencies to conduct the investigations and law enforcement take their marching orders from the banking industry and USGovt finance ministry. It is led by Goldman Sachs and JPMorgan. The Fascist Business Model has climaxed with profound fraud, broad powerful insolvency, and economic deterioration, laced with strong price inflation, marred by global revolt, and the inexorable march toward systemic failure to culminate in USGovt debt default. Nothing is remotely being fixed. The multi-$trillion financial fraud crimes will continue to go unpunished, unprosecuted, and even proliferate. The bond counterfeit continues unabated. The naked USTBond sales continue unabated. The front-running of Plunge Protection Team activity continues unabated. The USGovt monetary policy support continues to include regular raids on hedge funds directed by the Wall Street Made Men, designed to aid the USDollar, to encourage USTBond demand, and to thwart commodity investment. The Wall Street criminal bankers control the national government, its banks, its finance ministry, its military wings, the news networks, and the law enforcement. Hope is in short supply, unless tethered tightly to chains of Gold and wrapped in cables of Silver.

Members of the US population who believe the nation is not lost are sadly like ostriches burying their hands in the sand. The USDept Justice actually announced in a public manner that the mortgage bond fraud, and perjury committed by Goldman Sachs executives before the USCongress would slide, bring no reaction, and go unpunished. The most the public can hope for is some deferred prosecution cloaked in promises of bland restitution. Before a specially convened panel led by Senator Carl Levin, the CEO Lloyd Blankfein demonstrated lying, deception, and outright perjury in full national view. GSax regards the American people as a subhuman host to feed upon. See the Zero Hedge article (CLICK HERE). Witness the culmination of the Fascist Business Model in full flory. The merger of state and big business has shined like a gigantic spotlight of blatant financial crime, profiteering from warmongering, and seamy treason. People who expect justice are delusional. The system has been taken over the edge, far past the brink of failure. The nation is in a middle stage of systemic failure, whose major thread is magnificent criminal activity committed by the leaders in several sectors.

◄$$$ PRESIDENT OBAMA VISITED ENGLAND FOR NO STATED PURPOSE IN THE OFFICIAL CHANNELS. IT WAS ACTUALLY A LAST DITCH ATTEMPT TO HALT THE LAST CHAPTER OF A $TRILLION FRAUD SCHEME, ONE PERPETRATED BY THE BANK OF ENGLAND AND THE USGOVT LED BY WALL STREET FIRMS. LONDON WANTS THE GIGANTIC FRAUD CHAPTER TO COME TO A CLOSE, YIELDING TO COURT PRESSURE. WITNESS THE END OF THE AMERICAN EMPIRE, WHOSE LATEST CHAPTER HAS FEATURED GLOBAL FRAUD WITHOUT HISTORICAL PRECEDENT, LARGER EVEN THAN WIDELY REPORTED. $$$

This story extends from a very murky and controversial fraud role program, which many analysts call kooky. Some call it the Wanta Funds. The Jackass has avoided the topic for a long time. Yet its validity has been confirmed by my most reliable source, a gold banker. It is real, it is ugly, and it is huge, the interest payments for which total over $1 trillion over a full decade. So it is worth stealing, as Hank Paulson would attest. The fund is part of a much bigger network of fraud role programs totaling multiple $trillionS for which Fannie Mae and other trust funds (Social Security Trust) have been involved. The concept is to lock down a huge fund, steal its interest, and keep the public in the dark. The USDept Treasury (aka Goldman Sachs) has been managing the theft for close to 15 years along with the Bank of England. During the Obama visit to London, a surprise email arrived without solicition, since it was deemed very important. A second independent source confirmed the same motive for the official London visit. He has USGovt, USMilitary, and US Homeland Security connections. The two sources have dovetailed nicely in confirmation of certain stories. For instance, each source in September 2010 mentioned Papa Bush providing narcotics money aid to Bank of America in order to prevent an overnight bank default. They each mentioned the exact same $13 billion figure without my prompt.

The message from the gold banker cited how Obama had no good reason to be visiting the British bankers. He claimed Obama went there to beg the London bankers not to discontinue obstacles for release of the giant fund of money that had been highjacked. The Intl Court of the Hague has been involved, as has Interpol, to apply pressure on the criminal banker leaders in England and the United States. Upon inquiry of whether the appeal centered upon Wanta Funds, he said yes, he believes so. Something big is going on behind the curtains. Here is the detailed comment from the gold banker. He wrote, "This is nothing but the final and desperate attempt to avoid the unavoidable. The global Anglo-American dominance is coming to an end. The Bank of England has decided to pull out of the grand fund highjack game that has been so profitable to the US-Anglo bankers for over ten years. Just look at how the Europeans dealt with Obama when he visited Poland. Lech Walesa even refused to meet with Obama, by publicly stating that he was not available for photo ops. They slapped him in the face repeatedly and then told him to kiss off. His sleeveless inappropriate wife did not even accompany her husband to Poland, since the Poles refused to offer a ladies program. Last night the German Chancellor Merkel was forced to circle in Turkish air space for two hours since the Iranians canceled the over-flight permit for her to go to India. The Iran lockout conducted by the Americans is causing huge problems in Europe. Another plane with some German ministers, that had left one hour earlier, was allowed to pass without a problem. If one adds up all the little details here and there, it adds up to a lot of serious change in the wind. The writing is on the wall and it is ugly. One can sense that something profound is in the air. Like a mega thunderstorm rolling in. You know it is coming but not how many lightning strikes will happen or how hard the rain will be."

CERTAINTY OF A CONCEALED QE3

◄$$$ THE FACE OF QE3 IS STARTING TO TAKE SHAPE. IT WILL BE MAJOR FOREIGN CENTRAL BANKS AND BIG USBANKS THAT PURCHASE USTREASURY BONDS AT THE BEHEST OF THE USFED. INSTEAD OF BEING ISOLATED AS SOLE USTBOND BUYERS, THE USFED WILL URGE THE MAJORITY OF BIG PLAYERS TO JOIN OR WATCH THE SYSTEM FAIL. UNDER THE DECEPTIVE PLOY THAT BIG USBANKS MUST RAISE THEIR RESERVE REQUIREMENTS, THEY WILL BE COERCED TO PURCHASE MORE BUBBLY USTBONDS. THE NEED SUPPOSEDLY DID NOT EXIST SEVERAL MONTHS AGO. AS QE2 SUPPOSEDLY ENDS, THEY MUST CONFORM TO THE BASEL RULE. $$$

With the advertised end of Quantitative Easing Chapter II, a total ruse sham lie, the USFed and USDept Treasury must lead the crowd into USTreasury Bonds, even if at bubble asset prices. The stock market has been undermined, fully forecasted here with an exodus into bonds right on schedule. What remains is inducing the big US banks, given the monstrous volumes necessary to cover USGovt debt issued and rolled over. The edict started out as a preliminary indication of 7% asset reserves to be required by the large banks, in conformity all of a sudden to the Basel III Rules. So the final 3% rule could be seen as a compromise, less abhorrent when swallowed. A mass of buyers is required to fill the void. The USFed and Treasury henchmen can fill only so much with hidden devices such as the Caribbean centers that mask Bank of England support for their colony. Notice the scare tactics deployed against their own bankers. The excuse of Basel III enforcement provides timely and credible cloud cover. The USTBond and USDollar managers will succeed in only buying a little time before QE3 must be announced. The following is from a private memo from a major Swiss bank to its thousands of clients, before the final edict.

"One criticism often put on why the end of QE2 is irrelevant is that Treasury yields rose after QE2 was announced. In the Fed's December 14th minutes, it said 'In the weeks following the November meeting, yields on nominal Treasury securities increased significantly, as investors reportedly revised down their estimates of the ultimate size of the FOMC new asset purchase program', i.e. the Fed itself thought the rise in yields was because QE2 was disappointingly small to the market. According to the blog economics21, 'The Fed's August preannouncement gave the bond market a juicy buy-the-rumour, sell-the-news opportunity to buy ahead of the Fed and then use the Fed's purchases as an exit, exactly the same as with the Fed's December 2008 MBS purchase program.'

Fed Governor Daniel Tarullo said the Fed is considering raising the capital requirement rules for strategically important US banks to between 8.5% and 14% instead of the 7% level required by Basel III. The expected impact methodology would look at the amount of damage a firm's failure could impose on the financial system when deciding how much buffer to require. The Fed has not yet decided how exactly it will calculate the capital surcharge and is evaluating several approaches, including an expected impact methodology. They wrote, 'We cannot ignore the costs to society that the failures of SIFIs (systemically important financial institutions) would cause the financial system and the economy more generally.' Tarullo said the enhanced capital requirements should be met with high quality capital and rejected the use of hybrid debt equity instruments to satisfy the requirement for extra capital. Beyond capital buffers, the Dodd-Frank Law required the Fed to draw up tougher leverage and liquidity standards for large banks and financial companies that fit the systemically important description, proposals for which will be released in the summer. Presumably, depending on exactly what the rules actually end up being, they will have the equivalent impact to a breakup of monopolies."

The central bank and government finance minister plans to eat their own children. My theory covers the broad side, where major central banks will join the USFed in USTBond buying. The above argument covers the local side, where US banks large and small will be forced to buy more USTBonds, which is a tough road to hoe given their grotesque insolvency. The housing bust and mortgage debacle have rendered the US banks deeply insolvent. They are much more insolvent than one year ago. The threat of mortgage bond breakups and mortgage putbacks from investors to the big US banks constitutes yet another source of profound losses. The source of bank funds to cover the mass of unwanted USTBonds is a mystery. They might pull funds from the falsely named Excess Reserves held at the USFed. They are actually Loan Loss Reserves attracted by the USFed away from the banks. Maybe the big US banks can use USFed printed money lent from the USDept Treasury slush funds, passed through Fannie Mae, routed via the Caribbean, or better yet use narco funds directed from the US Security agencies by Wall Street hands in their enormous money laundering operations. It is highly doubtful that the narco barons will wish to throw away hard earned profits from heroin and cocaine operations, and squander them on overpriced USTBonds wrapped in a bubble.

◄$$$ BERNANKE BLAMED WEATHER AND SINGULAR EVENTS. HE IS LAYING THE GROUNDWORK FOR QE3, AFTER THE FINANCIAL MARKET DECLINES AND SPATE OF POOR USECONOMIC NEWS. BERNANKE HAS MANY EXCUSES FOR HIGHER COMMODITY PRICES, APART FROM HIS ORDERED MONETARY INFLATION. $$$

Turd Ferguson made some astute comments after the June 7th speech given by USFed Chairman Bernanke. It contained all types of excuses, some good diversion away from the QE and its hyper monetary inflation for causing the entire cost structure to rise. Ferguson wrote, "Never before have I heard The Bernank take so much time discussing individual commodities. He even mentioned wheat and the drought in Western Kansas, for crying out loud! It seems that the Chairman was taking great measures to shift the blame of commodity cost inflation to supply disruptions and global demand and away from Federal Reserve monetary policy. Why now? To me, The Bernank is again trying to buy himself some time. As stated above, money must continue to be created from thin air if the US Federal Government is going to continue to operate. As austerity is not forthcoming, further Quantitative Easing is the only possible funding solution. By shifting the blame and focus away from the weakening dollar and onto other specific events, The Bernank can continue to print money while blaming the attendant continual rise of all dollar denominated commodities on transitory events. Again, MOPE can buy you time but truth shall prevail. It is unavoidable." He refers to Mgmt of Perception Economics, the policy of vast deceptions in a massive subterfuge that must control and alter perceptions. Check the intriguing collage of words, which were mentioned in the Bernanke speech. The font size corresponds to the frequency of the word cited in his speech. Colors are for adornment.

◄$$$ THE CHICAGO MERCANTILE EXCHANGE LOWERED MARGIN REQUIREMENTS FOR THE BUBBLY USTREASURY BOND CONTRACTS, THE FAVORED ASSET. THAT SHOULD ENCOURAGE THE USTBOND RALLY AS THE QE2 CHAPTER WINDS DOWN TO AN END. THE CLEAR STRATEGY IS TO PRESSURE THE UNFAVORED GOLD & SILVER WITH MARGIN HIKES, AND TO AID USTBONDS WITH MARGIN EASE IN A TRANSPARENT SHAM. THE PREFERRED ASSET STEERING IS BLATANT. $$$

The USTreasury Bonds will find additional support from basic leverage devices. Under the cover of late Friday announcement, the Chicago Mercantile Exchange announced a reduction in USTreasury Bond futures contract margin requirements. These are the very same tactics that were used during the ambush of Gold & Silver one month ago. The CME is thus painting the mosaic in a coordinated strategy. It will need much more than coordinated interventions to sustain the USTBond bubble, especially when USGovt deficits actually rise another notch from the economic damage due to lost profit margins. The USFed policy is exacerbating the USGovt deficits!! The initial and outright margins for 10-year and 30-year USTreasury Bond Futures, even the 7-year Interest Rate Swaps, were all lowered by up to 19%. Witness flagrant shameless risk management and asset bubble work at the helm. The Wall Street handlers of the Administration have declared the asset of choice, the preferred investment, the Go Ahead for fund managers, the Green Flag for ambush avoidance. They are directing speculative capital into preferred asset classes. See the Zero Hedge article (CLICK HERE). Funny how PIMCO goes the opposite direction away from USTreasurys.

◄$$$ CHINA HAS REDUCED ITS SHORT-TERM USTBILL HOLDINGS. THE STORY ATTRACTED MUCH ATTENTION IN THE GOLD COMMUNITY, BUT THEY MISS THE BIGGER PICTURE. CHINA IS NOT ABANDONING THE USTREASURY BONDS. THEY ARE LIQUIDATING SHORT-TERM USTBILLS AS FAST AS POSSIBLE. SINCE EARLY 2009, THE $200 BILLION IN SHORT MATURITIES HAVE GONE TO NEAR ZERO, BUT THE OVERALL TALLY STILL EXCEEDS A RIPE $1 TRILLION. CHINA CONTINUES ITS GLOBAL ASSET PURCHASE PLAN, WHILE TRAPPED IN USTREASURY DEBT LIKE IN A BAMBOO CAGE. THEY CANNOT CUT ENOUGH DEALS TO SHED AN ENORMOUS HOARD OF USTREASURYS HELD. THEY STILL HAVE HUGE TRADE SURPLUSES. $$$

So China has divested almost all holdings in short-term USTreasury Bills. Big deal, really! They have seen their total USTreasurys owned swell to $1.145 trillion in total. China has dropped 97% of its holdings in USTreasury Bills, decreasing its ownership of the short-term USGovt securities from a peak of $210.4 billion in May 2009 to a mere $5.69 billion in March 2011. But back in June 2010 the total was even lower, or $4.00 billion. The entire story is twisted. Until October, the Chinese were generally compensating for their decreasing holdings in USTBills by increasing their holdings of longer maturity USTreasury securities. Until October therefore, China's overall holdings of USGovt debt continued to grow, regardless of short-term risk management. They have basically shunned the bonds that pay near 0%, like any prudent investor. They see no value but high risk on currency decline or rate hikes or failed auctions. On a small scale, China has also started to divest from longer-term USTreasurys. Their ownership of the USGovt debt has decreased in each of the last five months on record, including November, December, and January, February, March. This shows defiance during a trade war, revolt against a debased global reserve currency, and disdain for a deficit gone out of control. The adversarial relationship between WashingtonDC and Beijing has escalated markedly.

When the Bush Admin signed legislation to authorize a $700 billion TARP Fund bailout of the US financial industry in October 2008, followed by the Obama Admin signing a $787 billion shlabby economic stimulus bill in February 2009, the Chinese ownership of short-term USTreasury Bills skyrocketed. By December 2008, China owned $165.2 billion in USTBills, according to data at the USDept Treasury. By March 2009, their holdings swelled to $191.1 billion, and by May 2009, their USTBills held peaked at $210.4 billion. However, when the USFed embarked on Quantitative Easing and the rhetoric of currency manipulation continued, and the Google Wars entered the fray, direction shifted radically. The Chinese appetite for USGovt debt changed to show no taste for anything short-term. To claim the Chinese are abandoning USTreasury debt is not supported by the facts. They are trapped by the USGovt debt like in a grand bamboo cage as a result of their vast industrial output that fills US and Western retail centers. Recall Wal-Mart owns 160 factories inside China, a fact that should make founder Sam Walton turn in his grave. In August 2008, before the breakdown (death event) in US banking, overall Chinese holdings of USGovt debt stood at $573.7 billion. That number continued to rise sharply past May 2009, when China started to scale back its holdings in short-term USTreasury Bills. Their USTreasury holdings ultimately peaked at $1.1753 trillion last October 2010. As of March 2011, overall Chinese holdings of U.S. debt had decreased to 1.1449 trillion.

A note on the chorus of debt securities and abuse. In addition to the marketable securities sold by the USDept Treasury are the vast array of IOUs. They are officially called Intra-Govt Bonds, given in huge volumes to the USGovt trust funds that have been raided and gutted, such as the Social Security Trust Fund. This is the bottomless pit of USGovt red ink. Lately, add in the horrible costs to fund the Black Holes of Fannie Mae, AIG, and Wall Street bond redemptions. The publicly marketable segment of the national debt includes USTreasury Bills which mature in terms of one year or less, USTreasury Notes which mature in terms of 2 to 10 years, Treasury Inflation Protected Securities (TIPS) which mature in terms of 5, 10, and 30 years, and USTreasury Bonds which mature in terms of 30 years. At the end of August 2008, before the firestorm of ruin, the publicly marketable segment of the USGovt debt stood at $4.88 trillion. At the end of March 2011, when the Chinese cut the cord from short-term holdings, the publicly marketable segment of the USGovt debt had almost doubled to $9.11 trillion. China still owns over 10% of it. By the end of March 2012, the USDept Treasury must redeem all of the $1.7 trillion in USTreasury Bills spawned by March 2011. The other risk is contained in the shift in maturity, as longer dated bonds will cost more to finance, far from the 0% corner. A recent tally showed the total USGovt debt was $14.34 trillion, of which $9.74 trillion was debt held by the public and approximately $4.61 trillion was Intra-Govt debt. See the CNS News article (CLICK HERE).

This story misses reporting on a bigger item. China owns $1.145 trillion in USTreasurys in total. It matters little that China has dumped their pocket change in short-term USTBills. The rest of their holdings are monstrous. They might be committed to a strategy of converting long-term USTBonds to short-term USTBills, and dumping them as fast as possible. My conclusions is the Chinese are not making much of any progress. They are instead having a great deal of trouble, expending a great deal of effort, in staying level. It seems many people miss these basics. A friend told me three years ago that China was dumping all their USTBonds, by means of building Russian pipelines, African mineral deals, energy projects with Iran, and many other projects. He claimed the Chinese sovereign wealth funds had in their employ hundreds of folks cutting deals to the tune of $1 billion per month. My reply was "Bull cookies. If they do even $2 billion in deals per month, that will not touch their vast hoard. They need to do $20 billion per month in big deals for four to five years running to dump all their USTBonds, and they continue to accumulate them." He did not do the math. The Chinese foreign reserves are increasing by $20 to $30 billion per month from a steady strong trade surplus. They might have socked away $100 billion in PIIGS sovereign debt, but the figure is probably less than that. China must be willing to lose a significant amount of money in USTreasurys, in order to take the global mantle of banker control and unseat the USDollar as global reserve currency. They seem willing to make that sacrifice. Meanwhile, what China does not purchase, the USFed will be compelled to monetize in continued purchases. Foreign creditors are on a buyer strike ever since the cancerous QE and QE2 programs began. Even Brazil has held back. To minimize open revolt risk, the QE3 will be more a Global QE but conducted more in secrecy. China epitomizes the angry foreign creditor nations.

◄$$$ TAKE A BIGGER PICTURE OF TOTAL FOREIGN DEBT HOLDINGS. THE USFED IS THE LEADING INSTITUTION, A TRAVESTY, EVIDENCE THAT USTBONDS HAVE ALREADY TURNED TOXIC. SOON THE USFED WILL HOLD MORE THAN THE REST OF THE WORLD COMBINED. THAT IS A TICKET TO THE THIRD WORLD. $$$

Chinese long-term debt holdings have increased by $31 billion since last June 2010, when Chinese bill holdings really hit an all time record low. Consider Chinese short-term holdings in red, and long-term holdings in blue. Several months ago, their short-term holdings went to near zero. Hat tip to prudent money management, since yield on the 3-month is only 0.03%, on the 6-month the yield is only 0.10%, and on the 12-month it is 0.17% only. This is not news therefore. It can be very confusing, especially since both the USFed and China use UK offshore proxies in the Caribbean. Also, China uses Hong Kong banks too. Worse, a year ago, a reclassification took place apart from revisions to the data. Four months ago in February, the Chinese holdings were revised $268 billion higher to $1.12 trillion, which still left the USFed as top holder of USGovt debt. Regardless of short-term picture, the Chinese total holdings stand at $1145 billion. Their exposure remains huge, but their commitment is dwindling. They are busy using the hoard to buy Europe and the Persian Gulf. The USFed is trying to succeed where the Soviet Politburo failed, an impossible task even with substantial narcotics funds and full spectrum military dominance.

Although total Chinese holdings have declined for five months in a row, the decline is only 2.5% in notional bonds from October 2010 through the latest reported month. The net reduction from $1175 billion to $1145 billion is a non-story. The more dramatic message is that the USFed has become by a wider margin the largest USTreasury holder. Its holdings rise while the Mainland China holdings are flat. In third position is Japan, which will be selling USTBonds to cover the costs of reconstruction, and to fill the trade deficits that will turn chronic. The disaster scenario will unfold, like night following day, when QE3 is announced. The USFed will become the holder of more USTreasury securities than China, Japan, the UK, and all other nations else combined. See the Zero Hedge article (CLICK HERE).

HEIGHTENED RISK FOR USGOVT DEBT

◄$$$ USGOVT DEBT DEFAULT RISK IS RISING GRADUALLY. THE RISK IS BEING RECOGNIZED, DURING THE FUTILE BUDGET DELIBERATIONS AND TOTAL INABILITY TO REDUCE THE DEFICIT. COMMITMENT TO SPENDING IS ENTRENCHED. THE FUNDAMENTALS ARE UNFIXABLE, FAR BEYOND REMEDY. CHAOS IS GROWING CLEARLY IN MANY IMPORTANT NATIONAL PLATFORMS. THE CHINESE DEBT RATING AGENCY DAGONG CLAIMS THE USGOVT VIA HYPER MONETARY INFLATION HAS ALREADY DEFAULTED ON ITS DEBT. $$$

The band of legislators quibble while the generals wage war for private gain, against a backdrop of industry abandoning the nation and entitlements strangling the budget. No more asset bubbles to puff up except the USTreasurys, but that is an epitaph on a tombstone. The situation is best put into perspective by David Stockman, former Budget Director in the Reagan Admin. He said, "The real problem is the de-facto policy of both parties is default. When the Republicans say no tax increases, they are saying we want the US government to default. Because there is not enough political will in this country to solve the problem even halfway on spending cuts. When the Democrats say you cannot touch Social Security, when you have Obama sponsoring a war budget for defense that is even bigger than Bush, then I say the policy of the White House is default as well."

But the true insanity and unfixable nature are brought into proper perspective by John Williams, who heralds from the noble Shadow Government Statistics clan. When viewed in the terms he puts forth, the situation looks absolutely hopeless, a valid reflection of broken fundamentals. An eventual debt default looks certain. He said, "[The USGovt deficit] cannot be covered by taxes. The government could take 100% of everyone's income, corporate profits, and it would still be in deficit. [Conversely] they could also cut every penny in government spending except for Medicare and Social Security, and they would be in deficit." The message by Williams is that the national government finances are not even remotely fixable, even with total income confiscation, even with almost full government shutdown!! My forecast made in September 2008 stands, that the USGovt debt default will occur in two to three years time. Time is up, and the threat of debt default looms large.

The USGovt debt default risk has risen notably during the 2011 calendar year. The default risk for the average country has declined by about 5% this year, as 25 countries have seen Credit Default Swap prices go up and 32 countries saw their CDSwap prices go down. The United States has seen its default risk rise with shame. Greece leads the pack, whose debt insurance has gone out of sight, up 40% this year. The USGovt debt insurance has risen to almost 0.5% currently, registered at 46 bpts last Thursday. To appear in the top 10 for debt risk is a badge of extreme humiliation. But it is reality. Norway and Canada have perhaps the most sterling negligible risk of all. See the Before It's News article (CLICK HERE).

The US nation has already seen the advent of chaos. It began with the banking system going insolvent in late 2008. It spread with negative equity homeowners. Then it went somewhat viral with strategic defaults on mortgages, those done voluntarily in defiance. The big US banks as a result have suffered from an extreme case of constipation from seized homes in inventory, at a time when their widespread mortgage document fraud has enraged the citizens. Chaos could be best punctuated by the battle over proper home title. People are winning title, canceling debt on home loans, with direct court challenges. The latest stage has price inflation triggered by USFed monetary hyper-inflation, their response to runaway USGovt deficits and frantic angry creditors. Clearly, chaos is growing fast & furious.

The feisty Chinese debt rating agency Dagong has proclaimed that the USGovt has already defaulted on its debt. Guan Jianzhong is president of Dagong Global Credit Rating. He said, "In our opinion, the United States has already been defaulting. Washington had already defaulted on its loans by allowing the dollar to weaken against other currencies, eroding the wealth of creditors including China." The official sovereign wealth fund managers in Beijing continue their steady urge for the SAFE fund to exit its US$-based holdings and to minimize its US$ exposure. The story was pulled off the internet cloud quickly, but the message is clear for the USGovt to put its fiscal house in order. The rationale behind the Dagong statement is something cited by the Jackass repeatedly. The foreign creditors are stealth victims of a debt writeoff by virtue of the USFed debt monetization that has pushed the USDollar down in value. The USGovt and USFed engaged in unilateral decisions to inflate debt down, have caused profound asset losses to creditors, and continue to wreck the USDollar currency. The prize for the US bankers will be hyper price inflation. Ironically, Dagong echos Fitch, which last week joined Moodys and Standard & Poors to warn the United States could lose its first class credit rating if it fails to raise its debt ceiling to avoid defaulting on loans. The $trillion annual deficits are not the key driver of perspectives by the US debt rating agencies. The world has long considered USGovt debt a benchmark among safe haven investments. Times are changing. See the Straits Times article (CLICK HERE).

◄$$$ THE USFED TESTED THE MORTGAGE BOND WATERS AND FOUND THEM TOXIC. PRIMARY BOND DEALERS ARE CAUGHT IN THE SQUEEZE OF AUCTION SALES. THESE DEALERS WILL SOON BE UNABLE TO SHOVE BONDS TO THE USFED UNDER THE F.O.M.C. TABLE, WITH THE QE2 PROGRAM ENDING. THE BOND MARKET IS ENTERING SHOCK WITHOUT RECOGNITION ON THE MORTGAGE SIDE. THE AIR POCKETS COULD EXTEND QUICKLY TO THE USTREASURY MARKET. $$$

The Coming Out Party for the Maiden Lane II assets has caused a big problem in the non-USGovt bond market. Last week, the USFed attempted to sell one batch of its toxic debt worth $3.8 billion in a Dutch Auction. It was a massive bust, resulting in commitments to purchase only $1.898 billion. The USFed strategy to dump in liquidation piecemeal its $31 billion in the Maiden Lane II portfolio has begun to backfire badly. It exposes the entire ruined mortgage bond market in the process. AIG offered to purchase the entire toxic batch, an offer refused so far. The asset backed mortgage market is on the verge of an event, with obvious over-saturation, inviting a Perfect Storm. In the last several sessions, the USFed stuck with a dribble plan, offering under $1 billion per auction. It appears their aggressive change of plans has caused the mortgage bond market to plunge in price, evident from an absence of bidders.

Wall Street firms are taking action in advance, dumping their own mortgage bonds, thus aggravating the impaired market. Bloomberg reported, "Federal Reserve auctions of mortgage securities that the central bank assumed in the rescue of American International Group are fueling a selloff in credit markets as Wall Street rushes to hedge against losses on stockpiled debt. Declines in credit default swaps indexes used to protect against losses on subprime housing debt and commercial mortgages accelerated this month, reaching almost 20% in the past five weeks as the cost of the insurance climbs, according to Markit Group Ltd. The plunge this week started infecting everything from junk bonds to the debt of financial companies." The technical forces are clashing with fundamental factors, creating a perfect storm of events. Massive ripples are evident in the bond market. Much consternation and fear has surfaced over the prospect of bond dealers unable to liberally flip back to the USFed their inventory after obligatory purchase as intermediaries from auctions. The Primary Bond Dealers might be in line as major victims during a squeeze designed for the USFed to regain credibility as it tries to avert a hyper monetary inflation cancer. The credit market could be on the verge of a over-saturation implosion phenomenon. What an irony if the USFed kills its own dedicated bond dealers! Notice the deep damage to commercial mortgage bond values in the last year, as they plumb the bottom. See the Zero Hedge article (CLICK HERE).

◄$$$ RON PAUL SUGGESTED THE USGOVT SELLS SOME GOLD BULLION TO COVER THE DEBT. IT IS A GREAT MANEUVER TO FORCE AN INDEPENDENT AUDIT OF THE MISSING GOLD. FORT KNOX IS EMPTY, AND HAS BEEN FOR OVER 10 YEARS.

It is amazing to me that Ron Paul has not been intimidated and threatened into obscurity. He won some measures within the Dodd-Frank Bill on banking regulatory reform. His small victories forced more disclosure of the US Federal Reserve activity. The multi-$trillion extra TARP loans made globally was one shocker from the RPaul disclosures. The USFed activity in the following few months with favored bank loans was another, just recently made public. The latest maneuver by RPaul seems brilliant. He is urging the USGovt to close some of its massive yawning deficits from the sale of gold bullion held by the USDept Treasury. But before some gold in treasury is sold, it must be fully audited. So he is pressuring for an independent audit at a time when few could politically obstruct his motive to narrow the national debt with asset sales. Brilliant stroke!! Yet so far the gesture struggles to gain traction.

◄$$$ THE USFED OWNS NO GOLD BULLION. A SURPRISING ADMISSION SLIPPED FROM THEIR ATTORNEY DURING HEARINGS IN THE USCONGRESS. THE HOLDER OF THE GOLD HAS BEEN THE USDEPT TREASURY. THAT METAL LONG AGO WAS SOLD INTO THE MARKET TO SUPPORT THE USDOLLAR AND THE VAST ARRAY OF BOND SECURITIES. THE USDOLLAR IS CONFIRMED TO HAVE NO COLLATERAL EXCEPT NATIONALLY OWNED PROPERTY. GOLD IS WORTH MUCH MORE IN VALUE AS A CONSEQUENCE. $$$

The USFed lawyer Scott Alvarez either boldly or accidentally declared, "The Federal Reserve does not own any gold at all. We have not owned gold since 1934. So we have not engaged in any gold swap. Before 1934 the Federal Reserve did, we did own gold. We turned that over by law to the Treasury and received in return for that gold certificates. No, we have no interest in the gold that is owned by the Treasury. We have simply an accounting document that is called gold certificates that represents the value at a statutory rate that we gave to the Treasury in 1934." In an altercation between the USFed lawyer and Ron Paul of the USCongress House Finance committee, the central bank lawyer offered details. He explained that the USFed relinquished its gold over to the USDept Treasury in exchange for gold certificates. It probably coincided with the Wall Street theft under the Clinton-Rubin Admin. His mention of 1934 is a grand lie! Alvarez went further with a perplexing comment, that the gold certificates do not represent any interest whatsoever in the gold bullion itself. He explained the gold certificate listings on the USFed balance sheet on technicalities. The Fed's gold certificates are unlike previous gold certificate issues, and are not publicly trade-able. They only carry a $11.1 billion value anyway. They are also not direct claims to gold, but rather reflect claims only to USGovt issued currency or coin held by the Treasury. The USFed can take claim to this currency on demand, and their certificates are a liability ledger item accounted for of the Treasury as listed in Note 19 on the Treasury's Other Liabilities.

The USGovt gold (if it does exist, likely stolen, or leased & sold) is technically owned by the USDept Treasury. It appears on the USFed balance sheet for dubious purposes. The Alvarez statement was little more than an acknowledgement of the details. The implications of the basic facts lead to a couple of conclusions. 1) The widespread notion that the USFed owns gold is false. Hence it does not understate its gold holding value on the balance sheet. 2) Since the USFed owns no gold, nor claims to any gold, the fundamental value of the USDollar lacks any collateral backing besides the USGovt word of honor, and the USEconomy for its strength. Neither exists in large supply. Plenty of federal buildings, national park lands, port facilities, and even USFed building and equipment come to the fore in collateral. Therefore one can safely conclude that USDollars are worth considerably less than many people believe, or the market believes. Also, the USFed is much more impotent in using the leverage of their assets, and conducting monetary policy than believed. They command blunt ineffective tools that backfire on the USEconomy with less delay than ever before. The clarification by Alvarez strengthens the case immensely for a much higher value of gold in USDollar terms. See the Gold News article (CLICK HERE) or the Cafe Americain article (CLICK HERE).

USDOLLAR DECLINE & NASTY EFFECTS

◄$$$ THE USDOLLAR IS ROLLING OVER AFTER THE BOUNCE THAT RELIEVED THE OVERSOLD CONDITION. THE PROCESS TAKES TIME. ITS RESUMED DECLINE WILL OCCUR IN EARNEST WHEN THE QE3 IS ANNOUNCED. THE FOREX MARKET IS CALLING THE USFED BLUFF. NEW MULTI-YEAR LOWS WILL COME ONLY AFTER MORE OBVIOUS USECONOMIC DAMAGE IS OBSERVED. $$$

Without QE3 resumption of debt monetization, the USDollar will decline from diverse economic deterioration weighed down enormously by burdensome debt. With QE3 resumption, the USDollar will decline from profound currency debasement tied to the debt monetization itself. The US monetary policy makers and USGovt stewards have no good options. Several recent signals from the USEconomy are all weak. The US DX index cannot exit the trapped corner bound by a strong downtrend, a 20-week moving average offering resistance, and a 75-76 resistance line. Witness a death process. Given the investment by foreign bankers, the process will be excruciatingly slow. When QE3 is rolled out, expect it to be disguised, since its billboard banner is so toxic. My expectation is for a Global QE to be announced or revealed over time. When it comes, the 72 critical support will be challenged. Only when more damage is shown in the USEconomy from full blown recession, even supposedly aided by QE3, will the US DX index descend below the 72 level and enter the 60s. The USFed must make a difficult decision to install yet more Quantitative Easing, in order to manage the death process leading to systemic failure and USGovt debt default.

◄$$$ THE KEYNESIAN PROJECT LED BY THE USFED, AGGRAVATED BY DEPENDENCE UPON ASSET BUBBLES FOR ECONOMIC GROWTH, COUPLED WITH A STRING OF WARS, CLIMAXING WITH TOXIC BOND REDEMPTION, HAS RESULTED IN A GRAND DEBASEMENT OF THE USDOLLAR. IT IS BEING DESTROYED. THE MONETARY BASE IS STILL RISING RAPIDLY. THE GREAT RISK IS HYPER PRICE INFLATION. SHORTAGES & RATIONING ARE NEXT. $$$

More Quantitative Easing will enable the process to appear orderly. The heavy costs will be both higher price inflation and many empty store shelves. Each will cause a firestorm of protest and rising panic. The stage is set for chaos. In the next couple years, to stave off a rapid decline in the USDollar value, the USGovt will very likely institute price controls, leading to widespread shortages. Shortages will cause disruption to the supply chain, since diesel fuel will be caught in the storm. Truckers will demand compensation, which will spark price increases. Supermarket shelves will be half empty. The distribution system for the USEconomy has three weaknesses. 1) Large distances are covered, like from California and Florida for foodstuffs, and port cities in general. 2) The distribution system is overly reliant upon trucks and diesel fuel, less on electric trains. Local self-sufficiency is not a large part of the national makeup. 3) The entire supply chain is funded by commercial paper, which will also be disrupted. The resulting shortages for the complete spectrum of products will cause disorder. The governmental response will be rationing and crowd dispersion via sophisticated irritants. The American Politburo will flourish. The public will be forced to deal with shortages and rationing, typical of the Third World. A vast black market underworld will appear, expected to use silver coins as currency. Witness the early stages of systemic failure. See the National Inflation Institute video clip warning about price controls and the public response to shortages (CLICK HERE).

◄$$$ A DEBT SOAKED USECONOMY WEIGHS DOWN THE USDOLLAR. THE ABSENT MARGINAL PRODUCTIVITY OF DEBT MEANS THAT CREDIT ABUSE MUST RISE IN ORDER TO MAINTAIN AN APPEARANCE OF STABILITY. EXPECT FURTHER USDOLLAR DECLINES FROM THE GROSS INEFFICIENCY OF DEBT. IT TOOK OVER $6 OF NEW DEBT IN 2006 TO PRODUCE $1 IN NEW INCOME. THE ECONOMIC EFFICIENCY OF DEBT HAS FALLEN TO 50%, IN PRODUCTION OF GOODS & SERVICES. FOREIGN CREDITORS WILL SHUN SUCH DEBT RUIN. THE PONZI ECONOMICS ARE CATCHING UP TO THE USECONOMY, IN SYSTEMIC FAILURE. $$$


This topic has been raised before within the Hat Trick Letter. It takes $2 of new debt to produce $1 in USEconomic activity, the worse marginal productivity of debt in the nation's history. In a sense, the entire USEconomy has become an abused bubble asset which must devour an increasing amount of debt in order to sustain itself. Both income gains and economic activity come as poor outcomes, requiring ever increasing credit. The concept was first introduced by Kurt Richebacher, former chief economist at Dresdner Bank in Germany. He served as a gadfly for three decades, warning from the Austrian School steps that the Keynesian system founded upon debt would eventually collapse under the sheer weight of debt. He was early in his warning but correct on the outcome. The US debt productivity has turned into a powerful decline of gross inefficiency, leading not only to a bad end, but a systemic failure in my view. Debt like a water level has gone over the people's heads, drowning them, a fact reflected in homeowner insolvency and bank system insolvency, finally USGovt insolvency. For decades, each additional dollar of new debt has created less and less national income and economic activity. We are well inside the end game. Examine how many dollars of debt it took to help create total national income, which is defined as wages, salaries, profits, rents, and interest income within the national economy. Michael Hodges in his Total America Debt Report, wrote "In 1957 there was $1.86 in debt for each dollar of net national income, but by 2006 there was $4.60 of debt for each dollar of national income, up 147 per cent. It also means this extra $2.74 of debt per dollar of national income produced zilch extra national income. In 2006 alone it took $6.32 of new debt to produce one dollar of national income." These are frightening debt statistics, to prove the spinning of gears and engine burnout.

The exponential debt growth in the United States reached limits in 2008, pushed over the edge by poor loan underwriting and bond fraud. It collapsed, setting off a global financial crisis with a Made in America label. The last three years have racked up $trillions more in USGovt debt, with negative results. The recession has become worse in reality, apart from the nonsensical propaganda about slow jobless growth. The recession in 2010 was minus 3% or so. The recession this year is worse, perhaps minus 5% or more. The massive government deficit spending has failed to really ignite economic growth. The nation is weighed down by the enormous dead weight of unproductive and burdensome private sector debt. The real US GDP will have increased probably less than $1.5trillion during the three years, in the official doctored adjusted statistics. In reality, a recession deepens. At best, even with erroneous biased favored official data, the nation went $4 trillion deeper into debt for a paltry $2 trillion in GDP gains. My more unbiased statistics calculate at most $0 trillion in GDP gains from $4 trillion in added debt over the last three years, and more like minus $1 trillion in total GDP benefit. The efficiency has turned negative in a monstrous development of ruin. Witness systemic failure.

Without new QE3 funding, the system will utterly collapse. With new QE3 funding, given that marginal debt brings negative results, the system still heads toward collapse. As the ongoing QE continues, it will further debase the USDollar and lead to even greater declines in foreign exchange rates. The USDollar will lead the USGovt debt default process. The prospect for foreign creditors to hold or purchase USGovt debt securities soon could be perceived as a losing proposition, since the inefficiency has turned grotesque. That might make the rollover of USGovt debt and new debt issuance progressively more difficult. The alternative is much higher taxes (not likely) or much more continued monetary hyper-inflation (extremely likely). The concept that USFed monetary expansion is free, or that USGovt debt continues to be risk-free is absurd. See the Alrroya article (CLICK HERE).

◄$$$ A TURNING POINT HAS BEEN REACHED WITH THE G-20 MEETING. ITS LEADERS NO LONGER COME FROM THE WESTERN INDUSTRIAL NATIONS. PROPOSALS OF SELF-SERVING NATURE HAVE BEEN PROPOSED BY THE OLDER G-8 NATIONS. THE NEW LEADERS OF THE G-20 HAVE SWATTED THEM DOWN. THE FRENCH HAVE PROPOSED A RESOLUTION TO IMPOSE PRICE CONTROLS ON COMMODITIES. EXPECT IT TOO TO BE REJECTED. THE WEST IS LOSING CONTROL OF GLOBAL FINANCE TO THE EAST, LED BY CHINA WHOSE VOICE HAS BEEN LOUD, DEFIANT, AND UNWAVERING. $$$

Brazil and Argentina oppose commodity price controls. They do so for obvious reasons. While commodities represent costs for industrial nations, they open gates of income for the emerging economies. The story is not reported adequately in the West, since leaders want lower costs. But in the East, the objection to commodity price controls is growing, soon to become fierce. The French proposal was mentioned by President Sarkozy, which he wishes to put before the G-20 finance minister delegates. The call is to regulate commodity prices whose recent sharp increases are blamed for a spike in food & energy costs. France wishes to influence the G-20 group to push for commodity price regulation in a bid to block what it blames as market speculation in grains and other foodstuffs. The energy products are sometimes also mentioned as the object of speculation. Clearly the Western nations prefer supply rationing and shortages, certain deterrents to economic growth, to higher cost structure, another deterrent to economic growth. Controls have become the empty gong call that ignores the monetary effect on rising prices. In gold terms, prices of commodities are not rising much at all. Notice how over 2-1/2 years, the commodity prices vary within a range of 12% to 15% up or down.

It is clear that France acts as a voice from the older G-8 countries. They wish not only to export inflation, but also to block the commodity exporting countries from realizing greater income. The Western hyper monetary inflation has had a direct wealth transfer effect from industrial centers to producing centers. The higher commodity prices represent greater emerging economy wealth and income stream. A major battle is certain to ensue. The next chapter feature the reverse of three decades. The Western nations want to obstruct the inevitable import of price inflation after over two decades. As higher input costs stream across the diverse factories in the emerging economies, their final products will hit the US, UK, and European shores, next its shopping malls. They will arrive on shore with higher price tags, most noticeably at Wal-Mart stores where nothing is invisible. The Western nations are actively attempting to limit the higher commodity prices. Their movement will fail miserably. Look for the BRIC nations of Brazil, Russia, India, and China to walk out of the G-20, or to veto the price control movement. They have grown feisty, a byproduct of rising wealth, growing economies, and a strong leading nation with a Chinese voice. They are emboldened also by the obvious fact that Western nations are responsible for a wrecked global banking system. BRIC reserves are at high risk. They are angered by the obvious fact that the United States continues its multi-$trillion bond frauds, still without any hint of prosecution. See the China Post article (CLICK HERE).

The last few G-20 Meetings resulted in China slamming each Western proposal as disruptive or destructive. At the last meeting, US proposals to define imbalances were rejected. Two meeting ago, US proposals to address currency manipulation were rejected. The Chinese have essentially controlled the G-20 agenda in a rather visible display that depicts the shift in power. It is the Jackass belief that the BRIC nations are going to do something much worse. They will tell the G-8 nations to basically shut up and quit interfering with capitalism. They will tell the G-8 nations that they have destroyed the global financial structure and must permit the natural evolution to proceed. They will tell the G-8 nations to sit in the back of the conference table and listen, maybe learn a few things. The world is at a great turning point for the G-20 to take leadership, a process very evident recently. The pattern was set in the past two or three G-20 Meetings, where the US proposals were swatted down like painted flying mini-pigs in midair. Expect more Western proposals to be rejected summarily as self-serving, interventionist, anti-capitalist, counter-productive, unfair, and recognized as such.


◄$$$ SAUDI ARABIA STRUGGLES AND INVESTS IN ITS CRUDE OIL BUSINESS SIMPLY TO MAINTAIN ITS OUTPUT. ITS VAST OUTPUT IS IN DANGER. ITS EXCESS CAPACITY IS A MYTH. PEAK OIL HAS HIT SAUDI ARABIA HARD. THE PIVOT PRODUCTION LIES IN RUSSIA. THE MURKY BILATERAL CONTRACT BEHIND THE PETRO-DOLLAR DEFACTO STANDARD IS BREAKING DOWN. AT THE SAME TIME, THE SAUDIS HAVE DECIDED TO DISCOUNT THEIR CRUDE OIL PRICE, AND CAPTURE MORE OPEC MARKET SHARE IN A RISING MARKET. $$$

The West Texas writer, aka Jeff Brown, are really great analysts. The main article states the obvious on the Saudi production, that it has gone to a flat line. This is a very big huge deal! According to a Saudi oil official interviewed by Reuters, the investment in new drilling rigs "is not to expand capacity. It is to sustain current capacity on new fields and old fields that have been bottled up." Such news is deeply troubling since it implies that the Saudi oilfields are facing significant declines on current oil producing areas. Even more troubling is the recent statement by another senior Saudi oil official that the Kingdom "expects oil production to hold steady at an average of 8.7 million barrels per day to 2015." These statements made in regard to Saudi production call into question their willingness and ability to increase exports, which is tacitly understood to be the responsibility of the world's only pivot producer. That role as pivot producer might next go to Russia from here onward, and later to Brazil. Higher oil prices are often seen as a result of growing demand, like from emerging economies of China. However, the falling USDollar is a major factor in the re-pricing of crude oil in a debased currency. Recall the previous reported stories in the Hat Trick Letter about how the giant Ghawar oilfield is suffering from a 95% water cut. That means 95% of the oil field output is water, and up to 5% is crude oil, a strong signal that the Ghawar elephant field is no longer an elephant, but a medium sized waterlogged dog. See the Oil Drum article (CLICK HERE), an outstanding source of information in the petroleum industry. The Saudis are not in any position to compensate for any lost Libyan oil output.

A geopolitical impact is on the horizon, as the failed OPEC meeting in Vienna Austria made vividly clear last week. The Saudis cannot increase output. The Petro-Dollar defacto standard is built on Saudi oil, whose volume is far less than believed. They have a dead elephant oilfield in Ghawar. The Saudis no longer control the OPEC levers for crude oil output that are vital to control the crude oil price. Their Arab colleagues have a growing disgust for the entire notion of aiding the US or England or NATO, by bringing down their energy costs. Doing so brings down the Arab nation income at a time when food prices have escalated to the point that political stability is endangered. The Arab nations are very aware that the USFed has caused global food prices to rise. The Bernanke speech that cited numerous exogenous factors, plus the OPEC stalemate, seems to provide the Gold & Silver price the lit fuse for rising. The Petro-Dollar requires USMilitary protection of the Saudi royal billionaires. They are busy cutting deals for Persian Gulf security from China and Russia. The longstanding standard since 1973 requires control of oil supply by the Saudis. It requires a US$-based purchase & sale of crude conducted globally. All three requirements are slowly vanishing. The Petro-Dollar is dying a slow death. With its disappearance will come the Third World to the United States. See the Market Ticket article (CLICK HERE).

One step further, the Saudis intend to undercut OPEC itself on price and corner signficant income in a rising market, even with suspect oil supply from Saudi oil fields. Philip Verleger is a highly respected expert within the oil industry. He wrote, "Saudi Arabia has just pulled off one of the most remarkable public relations operations in many years. Last Sunday Saudi Aramco announced it was reducing the discount offered for its medium and heavy grades of crudes. The reductions in the discounts will make Saudi crude oil less profitable to refine and should, other things being equal, lead to a reduction in purchases of Saudi crude. The cuts will, however, likely boost Saudi revenue, the goal of every profit maximizing entrepreneur." With a rising crude oil price, the foregone profits will be minor, as they increase market share from their competitors in OPEC, mainly Arab colleagues.

◄$$$ THE EURO CENTRAL BANK SIGNALED THAT AT THEIR NEXT MEETING, THEY WILL HIKE INTEREST RATES. THEY GAVE THE USDOLLAR SOME SUPPORT, BUT ENOUGH IS ENOUGH. THEY MUST FOCUS ON EUROPEAN NEEDS TO DEFEND AGAINST MONETARY INFLATION. A COMPROMISE IS COMING, TO HIKE RATES NEXT MEETING BUT TO KEEP THE VAST LIQUIDITY FACILITIES IN PLACE TO FUND THE DISTRESSED SOUTHERN DEBT. $$$

EuroCB President Jean-Claude Trichet signaled a July interest rate hike in his usual telegraphed style. He used the codewords "strong vigilance" in a policy speech again. He claimed the ECB has shifted back to strong vigilance mode over inflation pressures. He stressed how strong vigilance is warranted. He pointed to continued upward pressure on overall inflation, primarily due to commodities and energy prices. The same codewords were used in billboard fashion before the ECB increased rates in April. The phrase was used repeatedly during its rate hike cycle between 2005 and 2007, typically one month before it raised rates. Some exceptions to that rule were seen, but only a couple. The EuroZone price inflation was recorded at 2.7% last month, high by their standards even if fudged like in the US.

The ECB officials kept the key interest rate at 1.25%, which stirs the speculative cauldron plenty. ECB policy makers are concerned about price inflation driven by crude oil, sure to fuel wage demands. Their monetary policy decisions are complicated by tensions between the German Govt over how much private sector creditors should sacrifice in the Greek tragedy over the sovereign debt crisis. One should be very clear that ECB policy will not be based on the Southern European periphery where PIIGS live. Two elements are under control. There is the rate and there is the monetary spigot. Expect the liquidity flow to continue amplified. The ECB will keep providing lenders with unlimited liquidity in order to prevent another Lehman catastrophe. They must contain the regional debt crisis, and prevent debt defaults certain to cause a gigantic ripple effect within the banking industry. Banks in Greece, Ireland, and Portugal have been deeply dependent upon central bank funding after their bond markets dried up. Holger Schmieding is chief economist at Berenberg Gossler in London. He said, "You cannot separate monetary policy and the problems of the periphery completely, but you can to a certain extent. It is likely they will indicate a rate hike and keep most of the other liquidity measures in place." That just happened last week exactly. See the Bloomberg article (CLICK HERE).

◄$$$ AN IMPORTANT THIRD FACTOR DETERMINES PRICE. IT IS NOT DEMAND, AS MOST DEFLATIONIST KNUCKLEHEADS CLAIM. IT IS NOT SUPPLY, AS THE MORONIC FOLLOWERS OF LAFFER CURVE ADVOCATES INSIST. INSTEAD, IT IS THE FALLING USDOLLAR SINCE ALL COMMODITIES ARE PRICED IN USDOLLAR TERMS. LOWER DEMAND WILL NOT RESULT IN LOWER COMMODITY PRICES, SINCE THE MONETARY EFFECT TRUMPS ALL. AN INFLATIONARY RECESSION IS DEEPLY ROOTED IN PROGRESS, WITH A DEPRESSION NEXT TO OCCUR. $$$

The entire table of commodity prices is rising. It always was rising, but since the advent of QE and QE2, the full price structure is rising much more quickly and noticeably. As the USDollar declines in value, the price of any commodity priced in US$ terms rises. The USDollar is not the constant, as they believe. Gold is, and the USDollar is falling versus Gold. This is basic science, but something that demand side Deflatinionist fools miss, and something that supply side Laffer fools miss. It is best to offer some solid evidence to these people with dull mental capacity, and move on. Sadly, is over their heads. Gold is the constant, as the USDollar moves within its stable sphere. The commodities therefore all move in US$ terms as a result. They miss utterly basic principles, spout nonsense repeatedly, remain steadfastly ignorant of their errors, learn nothing in the process, sound arrogant while on the wrong path, and continue to litter the landscape with their drivel and presence. They are an annoyance, even inside the gold community.

BIG BANKS TORN ASUNDER

◄$$$ USBANKS ARE IN POSSESSION OF FAR LESS CAPITAL THAN THEY CLAIM. THE F.A.S.B. ACCOUNTING RULE CHANGE PERMITS THE DECEPTION, BUT THE REALITY CANNOT BE PAINTED OVER. THEIR PLIGHT WORSENS. THEY CANNOT DUMP R.E.O. BANK OWNED HOMES ON A DEPRESSED MARKET. THE BIG USBANKS ARE TRAPPED IN A CONDITION OF EXTREME AND WORSENING INSOLVENCY. $$$

Estimates of US bank sector insolvency range from $2.5 trillion to perhaps over $3.0 trillion. The underwater nation suffers from massive insolvency that inhibits the normal bank lending operations. A bad joke is being played upon the US public. The big US banks claim also that they have tightened their lending standards. Big Lie!! They are insolvent and therefore must reduce their lending on a grand scale. The big US banks are in possession of far less capital than they claim, thanks to the FASB accounting rule change put into effect in April 2009. Their plight worsens. They cannot dump REO bank owned homes on a depressed market, even though they are being smothered to death by them. The big US banks are trapped in an extreme and worsening condition, insolvent to the tune of at least $3 trillion. As the housing prices continue downward, the bank insolvency grows deeper. The FDIC pretends to have funds to support over $7 trillion in banking deposits, but their insurance fund has long been depleted. If the big US banks were to process their own seized foreclosed homes that have resulted in grand constipation, they would cause two powerful effects. First, the national home prices would descend another 10% to 20% very quickly from the flood, assuming banks would approve the loan applications from the other side of the banking industry. Second, the bank balance sheets would crater yet again from lower prices. Stress Tests were a joke, but Reality Tests are a bitch! The mortgage bonds would follow suit, and hit new low distressed levels. So the big US banks would prefer to Extend & Pretend some more. They extend terms of loans, especially with commercial properties, and pretend the credit assets on their books are worth much more than reality. The MyBudget360 outfit does great work in analysis of the housing market and mortgage finance. See their chart below on bank balance sheet over-statement.

The entire banking system, with all its unstable pillars, with all its broken planks, with all its huge air pockets, is sitting atop mountains of debt. It contains over $10 trillion in mortgage debt, over $1 trillion in student loan debt, and over $750 billion in credit card debt. Then tack on $billions in other debt including automobile, boat, and aircraft loans. Current household debt is basically equivalent to the annual US GDP. The US banking industry really shot itself in the legs and chest repeatedly for a few years. Of the $900 billion in mortgage bonds issued in the Go-Go years beteween 2003 and 2007, an accounting shows a staggering $818 billion have fallen below investment grade. The banks sold junk, and held junk, thus digesting their own toxic brew, while loaded down by REO foreclosed homes in gigantic hairballs as proper reward. They are grotesquely insolvent as a result. Households do not have the ability to spend without going deeper into debt. Such is the outcome of a consumption based USEconomy, rather than an industry based one, an imported product emphasis rather than a made at home. Germany rejected the American model and will survive. The US middle class is gradually shrinking, the most reliable measure of the success of an economy, replete with benefits to society. This Main Street decline has been accompanied by the rise of the financial sector, a Fascist Business Model wrecking ball of profound destruction. See the MyBudget360 article (CLICK HERE).

◄$$$ GOLDMAN SACHS CREDIT DEFAULT SWAP COULD SERVE AS A PREDICTOR FOR USGOVT DEBT DEFAULT. THEY ACT AS THE USDEPT TREASURY, WHERE THE DEBT IS GENERATED. THE PAPER GAME IS OUT OF CONTROL. DEFICITS WILL CONTINUE OVER $1.5 TRILLION ANNUALLY FOR A LONG TIME. SPENDING IS LOCKED, WHILE TAX HIKES ARE NOT POSSIBLE. THE SYSTEM IS BROKEN. GSAX COULD BECOME THE POSTER BOY OF USGOVT RUIN. $$$

The champion of all insider trading, of investing in opposition to clients, of attacking hedge fund clients, of front running USGovt policy, of deceptive collusion with foreign governments on currency swaps to hide debt, the venerable Goldman Sachs might be in some trouble. They have been spared the prosecution route for both mortgage bond fraud and perjury before the USCongress. Any perjury charge would be ironic, since GSax authorizes reams of lobbyist funds for the very same legislators slapping their wrists. The GSax Credit Default Swap could serve as a predictor, a leading indicator, for USGovt debt default. Any default would expose the GSax juggernaut and all its sordid fraud, counterfeit, and influence peddling. The CDSwap price has begun to rise and cause concern. It is almost funny, if not tragic, that despite deferred criminal prosecution on mortgage bond fraud, despite being banned in Europe for misrepresentation and collusion to conceal sovereign debt, Goldman Sachs still has total control of the USDept Treasury. If only the people were more aware that GSax under Robert Rubin leased, sold, and leveraged a few $trillion in profit from the gold bullion that used to reside in Fort Knox. A reliable source has a friend who manages a security group in Fort Knox, which is used today to store nerve gas, nothing more, certainly no gold. The Jackass fully expects a USGovt debt default will come in the form of a forced debt forgiveness, during a grand global conference, with a hidden military threat looming.

◄$$$ UNDER THREAT OF PROPERTY SEIZURE, ENFORCED BY DEPUTIES OF THE FLORIDA COURT, BANK OF AMERICA WAS CORNERED AND COMPELLED TO PAY RESTITUTION FOR A WRONGFUL HOME FORECLOSURE IN FLORIDA. JUSTICE WAS SERVED. THE HOMEOWNER NEVER HAD A HOME LOAN AT ALL. BANK OFFICE EQUIPMENT WAS ALMOST SEIZED. WITNESS THE FIRST REVERSE FORECLOSURE EVENT ON A BANK. MORE WILL COME IN TIME. $$$

In the state of Florida, a wrongfully foreclosed homeowner succeeded in gaining restitution upon threatened seizure of office property from Bank of America after a court case win. BOA was in gross violation of the law. It attempted to foreclose on a property that had no mortgage tied to it at all. The court judgment against the bank ordered BOA to pay for the owner's fees and costs. A Collier County judge said Bank of America must pay the homeowner's $2534 legal fees for the error. After more than five months, the bank still had not paid up. Of course Bank of America refused to pay the judgment. Office equipment was taken with the aid of a deputy. They were prepared to seize desks, photocopiers, and computers that could be sold to pay the expenses. The bank manager locked himself in his own office, away from deputies and the victorious plaintiff attorney, while the bank manger tried to figure out what to do. After an hour the bank finally handed over a check to satisfy the debt, and no furniture was taken.

A representative for Bank of America issued a statement apologizing for the delay in issuing the court demanded funds. They claim the original request went to an outside attorney who was no longer in their service. Lie! The foreclosure nightmare started when Warren and Maureen Nyerges paid cash for a home owned by Bank of American in the Golden Gate Estates. They never had a mortgage whatsoever, no home loan at all. The bank wound up issuing a foreclosure through their attorney, resulting in a fiasco of national spectacle. The couple took their case to court and after a 18 month nightmare, the foreclosure was dropped. The couple had paid cash for their home, and never had a mortgage. They were foreclosed upon by Bank of America. The tables were effectively turned around. The defiant scofflaw bank was punished. See the WinkNews article (CLICK HERE) and the DigTriad article (CLICK HERE).

FLAGGING USECONOMY DEMANDS QE3

◄$$$ QE3 IS DEMANDED, NOT BECAUSE IT WILL CAUSE USECONOMIC RECOVERY. INSTEAD, IT WILL PREVENT A SYSTEMIC COLLAPSE, OR AT LEAST DELAY IT. HOWEVER, ITS PREVENTION OR DELAY COMES WITH A HEAVY COST OF A RISING COST STRUCTURE FROM THE DECLINING USDOLLAR. PRESSURE FOR CONTINUED QUANTITATIVE EASING IS OBVIOUS. $$$

A false impression has widely been promulgated. The USEconomy is weak and breaking down, moving toward a worse recession. The recession of 2008 never ended. It needs all manner of treatment, but proper treatment is not remotely being considered. The blunt force of QE3 will not bring about a USEconomic recovery. The extension of Quantitative Easing will be to prevent a jump in USTBill yields, USTBond yields, and Mortgage Bond yields, thus avoiding higher consumer loan rates and mortgage rates, and even worse. The extension of QE by the USFed will be designed to prevent a collapse. It would be to prevent a series of visible failed USTreasury auctions. It would be to prevent at least one big US bank failure from sudden credit asset declines linked to an accelerated housing bust and mortgage bond fiasco. My bet is on Bank of America to undergo failure. Ultimately, the wretched unsupportable condition of the USEconomy, the US banks, the US households, and the USGovt guarantees continuation of Quantitative Easing. The USFed and USDept Treasury are actively pursuing a termporary Scorched Earth program to send the financial markets downward, even as the laundry list of horrendous USEconomic statistics reads endlessly. The degradation of the USEconomy is broad, and deep with great momentum. Instead, the QE3 would prevent a move toward collapse, but at a heavy cost. The avoidance of collapse would come with much more price inflation, leading to civil unrest. The entire cost structure will increase again, with more visible food & gasoline rising prices. Witness the degradation and deterioration into an inflationary recession, later to turn into a depression.

v  Basically, QE2 was a failure, so it will be repeated. QE3 will prevent a more rapid financial sector decline and possible collapse.

v  The QE2 provided demand for USTreasury auctions, when most foreign creditors went on a buyer's strike. So QE will be repeated.

v  The housing market has resumed its downward path, with frightening problems to bank loan portfolios. Foreclosures continue. So QE will be repeated.

v  The big US banks remain insolvent, loaded down by a mountain of one million REO homes in inventory. Buyers of mortgage bonds have disappeared. Mortgage bond yields are rising. So QE will be repeated.

v  The USGovt deficit picture is a full blown nightmare. Rather than see market mechanisms kick into gear, with higher interest rates imposed, the leaders will continue on the hyper monetary inflation path. So QE will be repeated.

v  Talk of the risk trade counter to the USDollar ending is nonsense. Weimar has met Wall Street, the syndicate handlers of the USGovt and partners to US security agencies. The Printing Pre$$ with US nameplate cannot be stopped. So QE will be repeated.

v  The Gold & Silver prices will move up hard, as soon as the light bulb goes on that QE3 is imminent without interruption. One must be a total moron not to anticipate its immediate installation. To decide not to continue QE would force failures upon major US banks.

v  The USFed is all bluff with no good cards in their poker hand. They will wait for stocks to be a little cheaper and both sides of the USCongress to beg for QE3.

Inflation is all the US banking leadership knows. Left with poor or limited policy options, they will inflate more. Struggling with national insolvency, they will inflate more. Unable to load on vast stimulus packages, they will simply rely upon basic run-of-the-mill inflation. The USFed Chairman should be called the Secretary of Inflation in a perfect world. Inflation is all they know. They will inflate until the USEconomy is a burned crisp and the US banking system is a charred ruin. The USDollar is halfway complete with a death spiral, a crumpled piece of paper. The report card on QE2 is wretched. The S&P500 stock index was up 26% before a droop. Gasoline prices rose about 35%, food about the same across the many items. But it is all an illusion, since money is being debased. What has really happened is a decline in the value of the dollars that the stock market shares are measured in. Measured in Gold, the S&P500 index is up 4.5% only. In resource currencies like the Australian and Canadian Dollars, it is up not much at all. To the next desperate QE3 or better yet a Global QE, the Gold & Silver prices will respond with a moonshot. The FOREX market is not the domain of fools.

The fearful triggers to force the next announced QE are too many to list. Take your pick.

  • failed USTreasury auction while 10-yr yield goes to 2.8% (strange juxtaposition)
  • specter of USEconomic collapse frightens the USCongress
  • wave of big bank credit losses on mortgage bonds to frighten the USFed
  • USFed fears its own balance sheet collapse, never to be remedied
  • housing prices slide down hard to frighten the banks
  • Option ARM mortgages make big news on resets to frighten the masses
  • big bank failure like Bank of America that frightens the narco money launderers
  • Japanese Yen exchange rate goes to 130 versus the USDollar

◄$$$ WATCH THE JAPANESE YEN FOR SIGNS OF GLOBAL QE. THE USFED IS CREATING A VACUUM OF USTBOND DEMAND THAT WILL EXPOSE THE BEVY OF JAPANESE SALES OF THE SAME USTBONDS. THE YEN EXCHANGE RATE SERVES AS THE PRESSURE VALVE. $$$

The next round might be renamed Global QE if given broad central bank participation. Watch the Japanese Yen, whose exchange rate went back over 125 in a sudden upward thrust, fully forecasted by the Jackass in April. They are selling USTBond assets to raise cash for reconstruction and to cover trade deficits. The most important foreign currency to watch for causing extreme nausea and vomiting in fear, before the decision is made to have another QE party is the Japanese Yen. If the USFed does not lap up USTBonds sold by the Bank of Japan, then the Yen exchange rate will shoot up and cause a global headache with acute dispepsia. If another G-7 Meeting is hastily convened, they will coordinate USTBond purchases again. Call it Global QE, a far more powerful Quantitative Easing initiative with greater commodity price impact on a global scale. Expect it, but not by that name.

◄$$$ USHOUSING PRICES ARE FALLING HARD AGAIN, WITHOUT PROPS. THE PROJECTED FUTURE DECLINE BY SHILLER WILL HAPPEN QUICKLY WITHOUT QE3, AND MORE GRADUALLY WITH QE3. THE USHOUSING MARKET IS DESTINED TO FALL MUCH MORE, A PRIMARY FACTOR TOWARD SYSTEMIC FAILURE. PRESSURE FOR CONTINUED QUANTITATIVE EASING IS OBVIOUS. $$$

The US housing prices are destined to retrace the full gain from 1990, the main question being how rapidly. A continuation of debt monetization by the USFed would lead the decline down in an orderly fashion. Without QE3 or Global QE, the decline will be extremely fast and frightening, causing an emotional reaction within the US population perhaps bordering on panic. Housing prices will fall eventually to 30% or so below construction costs. A queer factor has those construction costs actually rising. Rather than stemming the decline in home prices, expect with more cost inflation that the housing prices will fall worse, like to 40% below construction costs. The bloat of inventory held by banks is astonishing, shocking, gargantuan. It ensures prices will fall significantly from here. More accurately, the massive and still expanding bank REO inventory is more a signal of USEconomic failure leading to bank failure, culminating in a USTreasury Bond default.

The bizarre outlier data pertaining to the housing market reads like a horror story and nightmare on Elm Street. See the Washington Post article by Gijsbert Groenewegen of Silver Arrow Capital (CLICK HERE). Like the Jackass, he has favored silver over gold since early December 2010.

  • Homeowners extracted a total of $2.69 trillion from their homes at the height of the housing boom between 2004 and 2006, according to Federal Reserve Board data.
  • Fully 28.4% of homeowners suffer from negative equity in their home loans.
  • Almost 40% of homeowners who took out second mortgages are underwater on their loans, more than twice the rate of owners who did not make such loans.
  • Among borrowers who took home equity loans, 38% of are underwater, versus 18% who do not make these loans.
  • At the end of May 2011, a staggering 14.3 million houses stood vacant in the US, requiring up to 13 years to bring it to a more normalized level.
  • Home prices fell by 2.5% in the first quarter of 2011, equal to a 9.6% annual rate, according to the Federal Housing Finance Agency. That is the fastest fall for any quarter since 2008.
  • Another massive wave of Option Adjustable Mortgage Rate resets is scheduled to take place, already begun, lasting through 2012 and into 2013.
  • The number of structural mortgage defaults is not calculable. Homeowners are halting monthly payments, daring a foreclosure, challenging banks to produce proper titles.
  • Near 0% short-term rates and sub-5% mortgage rates have not held back the home price decline, or the bank bloat of over one million REO homes in idle rot inventory.

◄$$$ INDEXES ARE FALTERING BADLY, A PROCESS OUTLINED IN DETAIL IN THE FINANCIAL PRESS, SINCE UNDENIABLE. THE LOUSY DATA BEGAN IN MAY AND CONTINUES. THE USECONOMY HAS ENTERED THE SHITTER. IT IS FAILING WHILE THE MAD CURRENCY PRINTING PROGRAMS ATTEMPT TO KEEP THE BANKING SYSTEM AFLOAT. THE DATA ON DECLINE IS VERY CONSISTENT ACROSS THE SPECTRUM. PRESSURE FOR CONTINUED QUANTITATIVE EASING IS OBVIOUS. $$$

Nevermind the cause of the sudden lousy parade of USEconomic data since May. The important factors are clearly linked to both a powerful cost squeeze forecasted by the Jackass for months, and an attempt to withdraw bond support by the USFed. The ongoing housing bust and mortgage debacle continue to attack the USEconomy like a grand machete. The nation replaced legitimate income in industry with home equity debt after shipping factories to China. The national leaders, dominated by bankers, are attempting to use monetary hyper-inflation to pull our way out of a liquidity trap. Let's review the parade of data from several sources, in summary.

  • Domestic vehicle sales fell to 9.2 million from 9.7 million
  • Philly Fed cratered in May to 3.9, from April at 18.5, and a March level in the 40s
  • Chicago PMI down to a May level of 56.6, from April at 67.6 and March at 70.6
  • Consumer Confidence fell to 60.8 in May, from 66.0 in April, 63.8 in March, 72.0 in February (highly correlated with the US stock market indexes)
  • ISM Services fell in June to 54.6, from May 52.8 (still expanding over 50)
  • ISM Manufacturing fell to 53.5 in May, from 60.4 in April, and 61.2 in March.

Some tidbits from the ISM Manufacturing survey are compelling. Participants responded to the prices paid query. The following items saw a notable rise in price: Air Freight, Aircraft Parts, Airfares, Aluminum, Beef, Can Liners, Chemicals, Chemical Products, Coffee, Conveyor Products, Copper, Copper Products, Copper Wire, Cotton Products, #1 Diesel Fuel, #2 Diesel Fuel, Food Products, Fuel, Fuel Products, Fuel Surcharges, Gasoline, HDPE, LDPE, Latex Gloves, Ocean Freight, Oil, Oil Products, Packaging Materials, Paper, Paper Products, Petroleum Products, Petroleum Resin Products, Plastics, Plastic Products, Polyethylene Bags, Polyethylene Resins, Rubber Based Products, Steel, Steel Pipe and Fittings, Steel Products, Textiles, Transportation Costs, and Transportation Services. Exactly no commodities were reported down in price. The trend is clear.

◄$$$ A HORRIBLE MAY JOBS REPORT CONFIRMS THE USECONOMY IS STUCK IN QUICKSAND. FOR THE USFED TO WITHDRAW BOND MARKET SUPPORT IS NOT PRACTICAL OR CONCEIVABLE. THE REPORT FORTIFIES THE USFED JUSTIFICATION FOR QE3. EVEN THE LOUSY LABOR MARKET RECOVERY IS EXAGGERATED TO THE POSITIVE SIDE AFTER THE BIAS. PRESSURE FOR CONTINUED QUANTITATIVE EASING IS OBVIOUS. $$$

The current supposed recovery has been the most pathetic in modern history from a labor standpoint. The big thick red curve (reflecting the present labor market recovery) does not register the huge annual March downward revisions. Last March 2011, on the order of 800 thousand jobs were cut in a downward revision, not shown. Every March close to one million jobs are cut, under the cover of darkness, never cited by the USGovt officials in public statements. Jobs that were suppossedly created are routinely eliminated in the following yearly revisions to remove the obvious bias. There has been no upturn, a near flatline like the pulse of a man's body whose next stop is cadaver at the morgue. Plenty of jobs await American workers, but they are not conventional. Those searching should focus their job searches on bankruptcy counseling, home foreclosure legal work, cleanup of abandoned homes, insolvent bank hired audits, flood insurance agents, assessors for vacated malls & mfg plants, and water testing in the Gulf Mexico. USFed Chairman Bernanke has blamed the poor labor market on a cornucopeia of factors, all exogenous of course. He insists as other economists do of a Second Half Recovery, the standby nonsense. Bernanke blamed the poor job climate on the impact to the car parts supply chain business, bad weather, floods along the Mississippi River, locusts, and tall grass.

It is almost funny how Bernanke relies heavily on excess labor slack to keep down wages, something he wants, which prevents the secondary wage effects in completing the price inflation spiral. Yet he cannot hope for the disappearance of the slack labor market. THE USFED NEEDS A LOUSY LABOR MARKET TO PERSIST SO THAT THE WAGE GAINS NEVER ARRIVE. So he avoids the reality, his role in castrating the labor market. Poor job growth is blamed on everything but lousy economic policy, when the reality is that the problem is insolvent banks, unresolved $trillion mortgage bond fraud, and the USEconomy continuing its deterioration from debt excess. REFRAIN: The absence of private job creation will put great pressure on the USFed to continue QE debt monetization, even though no benefit will come. The criticism of not proceeding with QE would stir great political criticism.

◄$$$ JOB DESTRUCTION HAS BEEN PERMANENT ON AMERICAN SOIL. MOST JOB GROWTH IN THE LAST TEN YEARS HAS COME FROM GOVERNMENT AND MILITARY, EVEN HEAVILY SUBSIDIZED WHILE THE PRIVATE SECTOR HAS SHRUNK. THE FASCIST BUSINESS MODEL HAS NOT SPAWNED PRIVATE SECTOR JOBS. EVEN THE FINANCIAL SECTOR HAS BEEN DECIMATED. PRESSURE FOR CONTINUED QUANTITATIVE EASING IS OBVIOUS. $$$

Unfortunately, due to chronic imbalances in the USEconomy, chronic fostering of asset bubbles, and chronic oppressive federal regulations, compounded by globalization to exploit cheaper labor overseas, much of the job destruction is permanent in the United States. To believe otherwise is misguided folly, a departure from reality. Many leading economists claim that America is suffering a permanent destruction of jobs. The JPMorgan Chase Chief Economist Bruce Kasman said, "We have had a permanent destruction of hundreds of thousands of jobs in industries from housing to finance." The Wells Fargo chief economists John Silvia said, "Companies really have diminished their willingness to hire labor for any production level. It is really a strategic change." He observes that companies keep fewer employees in general, the new trend in the business model. Not only is more equipment deployed, but Just in Time inventory is widespread. The JIT methods require fewer warehouses and staff. Economist David Rosenberg said, "The number of people not on temporary layoff surged 220,000 in August and the level continues to reach new highs, now at 8.1 million. This accounts for 53.9% of the unemployed, again a record high, and this is a proxy for permanent job loss. In other words, these jobs are not coming back. Against that backdrop, the number of people who have been looking for a job for at least six months with no success rose a further 0.5% in August to stand at 5 million. The long-term unemployed now represent a record 33% of the total pool of joblessness." The data points to severe decay. These are alarming statistics in the labor market. The US population is growing at 127,000 per month. Hence about 100k new jobs are required to meet national demographic growth. This detail has been omitted in recent years, since the USGovt is desperate to show any labor growth at all.

According to ADP, last month only 38,000 jobs were created in the private sector. Fierce debate has ensued on how much the USGovt has spent to create private sector jobs. Public sector jobs and defense hiring have accounted for virtually all of the new job creation in the past 10 years. The graph below is stark evidence of the war economy effect. Notice it has grown since the Obama Admin began, which goes contrary to the expectation for change. Public spending has accounted for almost all new job creation in the past 10 years, claims Michael Mandel, the chief economist for BusinessWeek. Private sector job growth was almost non-existent in the past decade. Witness the effect of the Fascist Business Model meshed with a war economy, which smothers the private sector and leads to a flourish of destructive factors from the lack of multiplier effect. See the Washington Blog article (CLICK HERE). REFRAIN: The absence of private job creation will put great pressure on the USFed to continue QE debt monetization, even though no benefit will come. The criticism of not proceeding with QE would stir great political criticism.

◄$$$ THE JOBLESS RATE IN THE UNITED STATES CONTINUES OVER 22% IN THE REAL WORLD. THE USGOVT STATISTICS RELY UPON WORKERS FALLING OFF THE TALLY WAGON FOR REGISTERED DECLINES IN THE JOBLESS RATE. THEY FOOL NOBODY ANYMORE. PRESSURE FOR CONTINUED QUANTITATIVE EASING IS OBVIOUS. $$$

The May Jobs Report was miserable, as it reported 54 thousand net new jobs created. The jobs report would have been more miserable without the help of the 206 thousand fictional jobs from the Birth-Death Model, their handy propaganda tool. It acts much like the seasonal adjustment tool and the hedonic adjustment tool, all vital devices in their toolbag of deception. No doubt the Central Plains and Southern Gulf regions were soaked with floods. Step into the world of reality in which we mortals live. The Shadow Govt Statistics folks provide honest data on the jobless rate, with distinctions given that shed light on the gradual disenfranchisement of workers. The May 2011 seasonally adjusted headline U.3 jobless rate rose to 9.05% in a minor lift. The broader U.6 jobless rate, which counts the discouraged workers who drop out and those who take part-time jobs in expedience, came down slightly to 15.8% in May. At risk are 150 thousand workers likely to fall into what SGS calls the nether world of long-term discouraged. The SGS Alternate Unemployment Measure held at 22.3% in May, unchanged, the most accurate jobless rate measure available. In the last 18 months, another key statistics glares to shed light on the worsening labor market. The duration of time in unemployment has moved from 18-20 week range toward the 40 week level. The Shadow Govt Statistics outfit, for purposes of comparison, estimate peak non-farm unemployment rate in 1933 at 34% to 35% during the Great Depression. Like with the housing market, the USGovt barkers and financial sector shills claim a recovery is in progress. Slowly they are stepping away from their own propaganda. REFRAIN: The absence of private job creation will put great pressure on the USFed to continue QE debt monetization, even though no benefit will come. The criticism of not proceeding with QE would stir great political criticism.

◄$$$ A MCKINSEY REPORT ON THE USLABOR MARKET IS DISCOURAGING. A FULL DECADE OF HIGH UNEMPLOYMENT SHOULD BE EXPECTED DUE TO STRUCTURAL WEAKNESS AND IMBALANCES. THE DESTRUCTIVE TRENDS MUST BE REVERSED. OUTSOURCING AND THE TENDENCY TO FAVOR CAPITAL EQUIPMENT OVER HUMAN ASSETS HAS WORKED AGAINST THE AMERICAN WORKERS. $$$

McKinsey is a prestigious consulting firm. They released a sombre report about future prospects for the United States, wherein they forecast high unemployment to remain high for several years. The report was released in London, where factual objective work is better received than in the propaganda soaked United States. Ten years from now, the analysts expect the same rough labor market except in the most optimistic scenario for job creation. The study found that while the USEconomy needs to create 21 million new jobs just to compensate for past population growth, such will occur only with a strong economic recovery that includes complementary productivity gains, a slowdown in the outsourcing of manufacturing jobs overseas, and a rebound in new business start-ups. To expect the jobless rate to fall from 10% back to 5% as a recovery struggles is without basis. They cite efficiency initiatives tied to widespread common corporate initiatives for capital spending over the human hires as a harmful trend. People cost money in wages, and people require fringe benefits, neither of which induces profitability. See the Financial Times article (CLICK HERE).

◄$$$ THE BIRTH-DEATH MODEL REMAINS A GRAND DISTORTION. IT ADDS JOBS FOR VIEW ON REPORTS, ONLY TO BE REMOVED EVERY MARCH IN REVISION. THEY HAVE UNDERCUT THE CREDIBILITY OF THE NON-FARM JOBS REPORTS, WHICH HAVE ALREADY BEEN FROM SUBSTANDARD EFFORTS. THEY STILL DOMINATE THE OFFICIAL NEWS. WITHOUT THE B-DMODEL, JOB GROWTH WOULD BE CONSISTENTLY NEGLIGIBLE. $$$

Simply stated, the Birth Death Model is a propaganda tool designed to enable the USGovt officials to declare some urgent job growth whenever needed. But it has limits. Technically speaking, it is a time series model called the Auto-Regressive Integrated Moving Average model (ARIMA) derived from a series of birth/death monthly ratios. It is a goofy exotic 11th-order polynomial that attempts to predict net creation of new businesses based on crappy past data that cannot overcome globalization effects in a new era. The B-DModel added 206k jobs in May, but it was also active in past months. Over the past four months, the Jobs Reports have supposedly added 752k jobs, of which 610k have been from the absurd B-DModel source. Past years include the same phenomenon of deception, with 510k jobs from the B-DModel in 2010, another 585k jobs in 2009, another 825k jobs in 2008, another 883k jobs in 2007, and a oversized 1.002 million jobs in 2006. In the last decade, the handy reliable Birth-Death Model has never once reduced the negative job count, in dutiful fashion.

Last week, Tom Keene of Bloomberg News questioned Bank of America chief economist Ethan Harris, asking him to explain what the B-DModel is. He had no idea, giving a limp response. Keene failed to inquire why the annual revisions in March are so large and are never given emphasis, a certain dropped ball by the interviewer. Harris explained that shocks slow the USEconomy down. After the Japan shock, people pulled back in caution from their normal spending patterns. He claimed QE2 was begun only after many poor months, so do not expect QE3 to occur right away. But the lousy May Jobs Report puts the USFed inflation engineers a step closer. Harris believes the manufacturing sector is held back by housing, a stupid comment, since held back by shipping factories to China from 2002 to 2005. He said corporations do not want to make long-term commitments, when it is more like they see a vast profound deterioration and grotesque national insolvency. He pointed to home improvement as the brightest spot within the housing market, a sad commentary. Mindlessly, he said GDP growth at 3% is ok, eventually enough to achieve recovery. In shallow style, ignorant of statistical modeling, he explained that the Birth-Death Model accounts for company formation and failure, his display of zero depth. Harris actually said he has no reason to doubt its veracity, since they have been refining the model over 15 years. Neither the revisions nor the propaganda value are discernible to this Wall Street dull blade. His annual salary is the better part of $1 million. He concluded that he does not believe the USEconomy could be worse than the already bad economic data shows. Yes, it is!! See the Zero Hedge article and the interview video clip (CLICK HERE).

The Birth-Death Model started to receive more adverse publicity two years ago. Rick Santelli at the Chicago commodity trading pits reported on the sham for CNBC to assist greatly in exposing the sham. Since that time, the B-DModel receives bad press every month. Some call it an important part of the Imaginary Jobs Report, in a perfidy in misstating jobs growth. So it added 206,000 imaginary jobs in May. The B-DModel, as previously mentioned in past Hat Trick Letters for the last few years, badly estimates small business creation during difficult economic times. It is a horrible statistical tool during the transition of downturns and upturns. That is because it depends upon continuation of trend, like any statistical model. Unless it factors in powerful exogenous effects like globalization, or big US bank insolvency, or USGovt deficit drainage of capital, or chronic negative home equity, it is totally useless, except as a handy propaganda tool. Notice the Jobs Report monthly changes, after removing the Birth-Death Model, more of a accurate reflection of reality. See the Cafe Americain article (CLICK HERE).

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