"Bernanke has zero credibility as far as I am concerned. The Federal Reserve has zero credibility. Go back at everything Bernanke has said in the last seven or eight years since he has been in Washington. He has never been right about anything. The man has zero credibility for anyone who would take the time to look at his history. They have been printing staggering amounts of money. They have been taking staggering amounts of debt onto their balance sheet, much of being garbage. The federal government is spending huge amounts of money they do not have. We have inflation in the United States, and it is going to get worse." ~ Jim Rogers
"To be sure, those promoting only more aggressive fiscal and monetary stimulus ignore Credit theory and financial history. There is absolutely no discussion of Credit Bubbles or financial Manias, as if there is no evidence either has ever existed. [Nobel Prize winning economist] Paul Krugman proposes only more egregious deficits and central bank monetization without factoring in myriad risks, including the risks of Credit revulsion, currency collapse, and global financial meltdown. Rather than 2008 developments alerting officials to systemic Credit collapse vulnerability, the inflationists have hung their (and everyone's) hats on the specious 100-year flood premise." ~ Doug Noland (Prudent Bear)
"The situation is far worse than a struggle between any two factions within the US. It is an anticipated nationwide emergency event centered on the nation's currency. What the Dept of Homeland Security is expecting, and again, this is according to my sources, what they are expecting is the unsustainability of the American Dollar. And we know for a fact that we can no longer service our debt. There is going to be a period of hyper-inflation. The dollar will be worthless. The economic collapse will be so severe, that people will not be ready." ~ Doug Hagmann (private investigator with deep DHS source)
"The European [LTRO] debt structure will make it more sustainable, but it is still unsustainable." ~ James Millstein (former Dept Treasury official and Lazard restructuring chief)
"And so the check bounces, which is ironic, because as we repeatedly explained, the Greek bailout is not about Greece. It is merely to allow Europe to bail out its banks via Euro Central Bank and Troika funded interest payments, using Greece as a passthru vehicle. Luckily, that particularly aggravating farce may soon be ending." ~ Tyler Duren (Zero Hedge)
"What may be lost in the noise that is the mainstream press is the fact that Greece has not been in a recession or even a depression. Greece has been in a state of slow motion economic collapse on the scale of past economic collapses such as that of Argentina, but so far without the ability to default [on their debt], devalue [their currency], and inflate [their falling assets]. [PIIGS nations] are only delaying the inevitable by remaining in a currency union with Germany, which ensures their economies are also in a state of slow motion death spiral of economic collapse. They are in fact making the economic pain of their populations far worse as a consequence of dragging out economic collapse over many years rather than months, as would have been the case had they had their own currencies and money printing presses such as that deployed by the UK. London has successfully used smoke and mirrors inflation to mask the truth that the nation is in a far worse state in terms of indebtedness than most of the EuroZone countries." ~ Nadeem Walayat (editor of Market Oracle webjournal out of London)
"There is a very good chance Greece will exit the Euro. It would have been desirable if the European countries had kicked out Greece three years ago. It would have saved a lot of agony. As a result of the bailout, the problem has become bigger and bigger and bigger. I think it would be much better for Greece and the entire Euro area if Greece were kicked out. Spain kicked out. Italy out and even France should be out. At the end you just have Germany with the Euro currency. The other countries can have their own currencies and still trade and use the Euro as an international currency." ~ Marc Faber (who comprehends that all PIIGS nations will be out soon)
"Greece's exit may become the envy of the EuroZone. Default will be disastrous for Greece and the resulting contagion would be damaging for Europe. So goes the conventional wisdom. The only debate has been about the strength of contagion and the appropriate response of vulnerable countries and of the cheque-writing country. Might the debate be misguided because the premise is flawed? Expelled from the EuroZone, Greece might prove more dangerous to the system than it ever was inside it, by providing a model of successful recovery." ~ Arvind Subramanian (think in terms of the Iceland model to force massive losses to the banks, plow them under, nationalize banking systems, and move forward without the chokehold around the nation's neck)
"Spain is the big exposed toilet. France is the lever for the plunge flush, just pulled. Italy is the outhouse tipping over. The US & UK are the sewage treatment plant overflowing. Germany is the strained bidet (CLICK HERE), surely overused. The USFed is the water utility delivering toxic water from several outflow pipes. GSax and JPMorgue are the turds circling inside the toiley breaking apart. The green tint in the water is from the USDollar toilet paper squeezed off the rancid fecal matter. The big event will occur when some big bank has a sudden bout with diarrhea and breaks the toilet altogether." ~ The Jackass (no insult intended to legitimate honorable Turds like Ferguson)
"Anonymous is a Trojan Donkey coming out of the same shop as Al Qaeda , Operation Gladio, and all the other Disney-like illusions created by the guys south of the Potomac river to deceive the common sheeple. People are incredibly gullible. Green Peace is a similar pool of conjured fools. They tie up brain power and people's energy in these organizations, so they cannot become a danger to the Boyz elsewhere. It is the battle proven Problem-Reaction-Solution Matrix, all coming out of the same corner office. Divide and conquer." ~ Source (with strong connections to intelligence groups in England, Canada, and Saudi Arabia)
For a nice treat, enjoy a quick video tape of the American classic, the Kentucky Derby horse race, the first in the triple crown pursuit (CLICK HERE). Always a thrill. Then see a similar race result in the second leg of the triple crown pursuit (CLICK HERE). A double thrill.
## MONETARY FRAGMENTS
◄$$$ THE NEXT MFGLOBAL VILLAIN SINKHOLE MIGHT BE IDENTIFIED. NO SUCH FINANCIAL SERVICES FIRM WILL WARN OF TROUBLE. THE PRECEDENT HAS BEEN SET FOR HYPOTHECATION (THEFT) OF PRIVATE ACCOUNTS DURING TIMES OF TROUBLE. INVESTORS SHOULD TAKE PREVENTIVE ACTION WHEN THE SIGNS OF DISTRESS ARE SEEN. PENSON SHOWS DISTRESS. $$$
The Jackass openly stated in December that more MFGlobal private account thefts should be expected. The precedent has been set. No prosecution of the theft by JPMorgan have occurred. The official avoidance game is clear. The crime scene shows the law subverted, since MFG was a brokerage house, not a financial firm. With MFGlobal the CME refused to honor its required commitments to restore investor accounts. The USDept of Justice have ignored the brokerage house law procedures. Oversight failed and customer funds disappeared. An impending market dislocation event appears on the horizon, the next target possibly identified. Credit goes to the vigilant Ann Barnhardt, who has fingered Penson Worldwide as the next potential domino. The company is a provider of a wide range of critical securities and futures processing infrastructure with products and services to the global financial industry. Their stock price indicates deep distress. The net capital for Penson has deteriorated significantly in recent months. CME has given the public every clue as to their response to the next theft.
The March data is not yet available, but the February data shows the Penson net capital was down nearly 30% over January. If Penson fails, the rules should follow a safe course for client funds. But these are not normal times. The big financial firms are desperate to avoid bankruptcy, and thus eager to snatch (aka steal) client funds. It is entirely possible that the proprietary trading of all brokerages would unwind, yet client funds would vanish as they did under the watchful eye of CME and the eager hands of JPMorgan. In today's marketplace, no such thing as a safe brokerage exists when the USGovt provides regulatory oversight in the midst of the pervasive vile Fascist Business Model. A day might come when many giant banks and brokerages have enough proprietary exposure that a gaggle will all fail, leaving client funds in a vanishing act.
The prudent investor should assume the worst, since the officials have shown that the worst in outcomes will find no remedy or conformity to law. In m view, anyone playing with futures contracts in the current environment is like a nitwit marching in an open field with a metal pole during a lightning storm. Individuals with a 401k, an IRA, or a pension fund, whether private or public, face great risk. The USGovt will not protect you, and worse, might encourage big financial firms to ensnare and defraud you of the funds. The political leaders are receiving vast money on a regular basis from the financial sector. The conflict of interest is a grand stench. The public must protect themselves, and removing funds from the system might be the best path. Investment in gold and silver bars and coins, held outside the criminal confines of the United States has proved itself a wise course. See the Market Ticker article (CLICK HERE).
◄$$$ THE GLOBAL MONETARY WAR IS IN ITS FOURTH YEAR. IT HAS A SOFT NAME FOR OFFICIAL USE, THE GLOBAL FINANCIAL CRISIS. NO RESOLUTION IS NEAR, AS THE EVENTS OCCUR MORE QUICKLY, THE IMPACT MORE SEVERE, THE DAMAGE TO THE SYSTEM IRREPARABLE. THE WAR SEEKS A CLIMAX. THE FINAL CHAPTER INVOLVES THE UNITED STATES LOSING ITS CREDIT CARD, THE GLOBAL RESERVE LICENSE IN THE USDOLLAR. THE THIRD WORLD AWAITS. $$$
George Orwell has a wonderful grasp of official deception and guile. The commonly reported confidence problem is more like aversion to corruption, theft, and fraud. The commonly reported liquidity problem is more like debt collapse, wage destruction, and profound loss from investments. In my unique view, the financial world war began in 2003 with export of toxic mortgage bonds. The Enron event was the dead canary in the mine shaft years ago, where investors were fleeced, including a few known by the Jackass. The Greenspan directives enabled the US financial sector to engage in deep fraud without oversight, even active encouragement. The war escalated in 2008 with the Lehman Bros kill job, a designed execution with motive and full exploit by JPMorgan. Hidden was the forced Fannie Mae nationalization, forced by China, angry over the accumulation of US$-based bonds under a 1999 Most Favored Nation accord that the United States had violated. The crumbling European sovereign bonds are the latest and most visible deadly collapse event. The TARP Fund smokescreen was used to shield $26 trillion in special grants (loans at near 0% never to be repaid), another big raid by the elite. The TARP Fund flows have stopped, a probable cause for added strain and stories of breakdown.
The mortgage contract violations, replete with robot signatory functions, was a fraud perpetrated in full view. Its prosecution has been spotty, with hundreds of forgiven home loans as punishment, peanuts in the entire system. The European breakdown has been a spectacle, drawn out in slow motion with false fixes galore. The MFGlobal client thefts were collateral damage, snatched by JPMorgan in a desperate turn. The Madoff Fund was pure plain fun, part of a vast role program run by the USGovt and Bank of England with full impunity and active protection. The money still resides in Switzerland, protected by very strange laws with religious overtones. The Libyan gold liberation of 144 metric tons was a pillbox war raid, where descriptions of the active soldiers being NATO served as distraction to the truth. The Iran sanctions are a recent standoff turned into coordinated retaliation against the USDollar forces, which has worked to accelerate the gradual implosion of the US$-centric fortress. The new Eastern SWIFT bank system alternative and gold based global trade settlement will serve as the USDollar coup de grace. So many aspects to the global monetary war would fill a large book. It is about preserving the USDollar in its primary role.
One should laugh at the term Global Financial Crisis since it is pure monetary war. It is like calling the Beubonic Plague an influenza outbreak. It is like calling Hurricane Katrina a rainstorm. The major tools of the United States in response are hyper monetary inflation for domestic bank sector benefit, fraudulent bond redemption in the $trillions without prosecution for bank sector enrichment, and endless war for private profit and control purposes. The world's major players have focused attention on removing the USDollar as the tool of mass destruction, along with its USTreasury Bond active market Jeep vehicle. Since 2012, the monetary war has taken a great turn in global unification by the East against the USDollar. The backfire against the Iran sanctions has provided a turning point in the war. Next watch the European theater transform and suffer worse inflation as it rejects the austerity poison pills ordered by the elite banker medical teams. The pendulum will soon swing very hard in favor of inflation on the Main Streets of Europe. The bond market will become the Intensive Care Wards in more acute fashion. Expect eruptions in the United States later this year at gasoline stations, where tempers will flare. Food stores might be another pressure point in the US, but gasoline centers are my forecast for hot spots. To be sure, people will struggle to eat, but the nasty outbreaks comes when people conclude they cannot get to work, or mobility suffers. When the USDollar is more fully rejected, the twin scourges of price inflation and supply shortage will enter the stage, identifying the early period of US Third World. Later will come credit denial.
The origins of the Global Monetary War are not difficult to identify. Some believe it started in 1996 when Greenspan declared an irrational exuberrance as a malady. Others believe it began when the Glass Steagal Act was rescinded in 1999, which enabled commercial banks, brokerage firms, and insurance firms to remove their internal walls. My belief is that this conflagration of war began in 1971 when the Bretton Woods Accord for the Gold Standard was violated, and it was super-charged in 1999 when the Most Favored Nation status was granted to China. The grant came with a hidden deal whereby Wall Street firms leased the old Mao Tse-Tung era gold & silver. Between 2005 and 2007 the USGovt betrayed China and reneged on repayment of the precious metal bullion bars. That heated up the trade war between China and the US, which today has taken on a new gold acquisition battle front. The current events could bring down the USTreasurys and the USDollar, since global trade settlement is at risk of turning its back on the USDollar. Nations seek new ways to settle like with gold or bilateral swap facilities, otherwise known as barter. Throughout the financial war, the US households joined in the self-destructive game by borrowing home equity, engaging in heavy consumption, only to find themselves subjects of home foreclosure and homelessness. They fell on their own swords, led by Greenspan himself. The United States is on the verge of losing its global credit card, the license used for consumption, fraudulent USTBonds, and tickets to endless war. The USDollar is soon to lose its global reserve currency status. When it does, the US will find itself thrust into the Third World.
◄$$$ THE PROPER PERSPECTIVE ON THE GREENSPAN DEPARTURE REQUIRES EMPHASIS. HE EXITED THE MESSY MANSION BEFORE THE STORM HIT THAT HE CREATED. CONSIDER A UNIQUE DESCRIPTION OF THE USDOLLAR. $$$
Independent analyst Bill Holter always adds excellent observations. He commented on the Global Monetary War without identifying it as such. The mindless discussion of recovery has become a mockery. Risk is not the appropriate term to use when violent financial destruction is the assured outcome. He wrote, "Greenspan understood [the sequence] and retired early. He knew that real estate was the second to last bubble and did not want to be around when the last bubble was blown. So here we are at the pinnacle of the final bubble, the sovereign debt bubble, and Ben Bernanke is talking about risk as if more than one outcome is possible. It is not. The world, including and especially the United States has taken on so much debt that it can no longer be paid of in current chits. The end is known, but how we get there is not. In other words, what policy choices are taken [do not alter the outcome]. On the one hand, policy makers can allow failures (pretty good bet that this will not happen). On the other hand, the policymakers will print whatever is necessary with 99+% probability. Either way, current chits will become worthless. If they were to allow failures to occur, the entire debt structure will come down. In case you were wondering, debt is what all currencies today are backed by. If they choose to print, well this one is a no brainer as to what will happen to chit values.
Sovereigns are having big problems rolling their debt and bigger problems raising new debt. That is why the USFed and EuroCB have blown up their balance sheets by nearly $3 more trillion. This is what has just now dawned on Bernanke. They have fired 3 [gigantic] cannon shots of liquidity and the patient is still flatlined. What Bernanke welcomed, the chance to run the central bank in depression conditions, is now his life's nightmare. His jolts of massive liquidity have not worked. He knows now that they are not going to work. His fault in logic? During the Depression, Dollars really were as good as Gold. Now, Dollars are simply chits that are backed by debts that are backed by debts that are backed by more debts. [Consider] his currency pieces of chit." The guarantee that the crisis will explode into a catastrophe extends from the Fascist Business Model, which Greenspan sanctioned since his camp came to rule. Those in power are the financial corporations responsible for the systemic breakdown, along with their many associates. They will not permit their own bankruptcy, liquidation, and removal, in order to permit the normal workable solution. So the process heads toward total ruin.
◄$$$ FIVE US-BANKS FAIL IN WORST WEEK SINCE APRIL 2011. THE MARCH TO PERDITION CONTINUES WITH ABATEMENT BUT LITTLE RELIEF. $$$
The decline in financial failures is not an important contradictory theme of the supposed USEconomic recovery, whose vomit sessions belie recovery. Since 2010, as a general rule, corporate bankruptcies, debt defaults, and bank failures have been decreasing steadily. The collection of available banks ready to fail has diminished, leaving the stable midsized banks, but also the big Zombies to roam with full intravenous lines attached to the USGovt dole. On Friday April 27th, the Federal Deposit Insurance shut down five banks to bring the total number of failures to 2012. The event was the worst Friday for bank closures since April 2011. The banks plowed under were Palm Desert National Bank out of California, Plantation Federal Bank out of South Carolina, InterBank out of Minnesota, HarVest Bank out of Maryland, and Bank of the Eastern Shore out of Maryland. Together, the five banks closed had combined assets of $1.423 billion. Through the first 17 weeks of 2012, a ripe 22 banks with a combined $6.5 billion in assets have failed. That compares with 39 banks with a combined $16.96 billion in assets that failed in the first 17 weeks of 2011. Times are improving, hardly the cause for celebration. The remaining survivors are much larger banks, protected often from failure even though insolvent. See the Yahoo Finance article (CLICK HERE) and for a complete failed bank list (CLICK HERE).
◄$$$ THE EURASIAN LAND BRIDGE (TRAIN) FROM CHINA TO TURKEY IS ON THE PLANNING TABLE. THE EARLY STAGES OF CONSTRUCTION FOR THE WORLD'S LARGEST MARKET IS UNDERWAY, THE CREATION OF EURASIA. ONE OF ITS BACKBONES WOULD BE THE TRAIN. $$$
A land bridge connecting China to the Western Europe nations is in the works. The prospect of an unparalleled Eurasian economic boom dominant in the next century is at hand. The first steps connecting the vast economic space are being constructed with a number of little-publicized rail links connecting China, Russia, Kazakhstan, and parts of Western Europe. Alternative project architects are quickly recognizing the need to work around powerful obstacle forces that have dominated for over 60 years. Like with the Old West in the United States, a rail infrastructure will play a major role to building vast new economic markets across Eurasia. Delivery supply is key. China and Turkey are in discussions to build a new high-speed railway link across Turkey, the largest project ever undertaken in the country. The project was perhaps the most important agenda item, far more so than Syria, during talks in Beijing between heads of state during the Chinese meeting in early April. The proposed rail link would run from Kars on the easternmost border with Armenia, through the Turkish interior on to Istanbul, where it would connect to the Marmaray rail tunnel under construction beneath the Bosphorus strait. Then it would continue to Edirne near the border to Greece and Bulgaria in the European Union. The total estimated cost is $35 billion. China has agreed to extend loans of $30 billion for the planned rail network. The completion of the Turkish link would finish a Chinese Trans-Eurasian Rail Bridge that would bring freight from China to Spain and England. For China the piece would put a critical new link in its railway infrastructure across Eurasia to markets in Europe and beyond.
From the 1960 decade onward, the United States placed high strategic importance to Turkey, but on a military basis. The visit by Erdogan to Beijing, the first high level trip of a Turkish Prime Minister to China since 1985, was significant in demonstrating the high priority China is placing on its relations with Turkey. Erdogan met with Chinese Vice President Xi Jinping, the man slated to be next Chinese President. He also visited the oil-rich Xinjiang Province, which hosts nine million ethnic Uyghurs sharing a Turkic heritage with Turkey, as well as ties to the Turkish Sunni branch of Islam. The ill winds of past conflicts in the region have passed, when the USGovt acting through the National Endowment for Democracy, encouraged a regime change through the Uyghur uprising. Some slaughters occurred.
In process is the building of the world's greatest market, for Eurasia. The continent of Europe is the prize, and it is turning Eastward for trade, security accords, and the future. An essential element to building new markets is a viable infrastructure. For the vast landmass of Eurasia, high-speed railroad linkages are essential to those new markets, in additional to direct commercial ties between companies. For the economically depressed countries of the European Union, joining with the growing economies of Eurasia offers a real way out of the present crisis. See the Market Oracle article by William Engdahl (CLICK HERE). He has always had a solid grip on developments related to Europe and Asia forging ties, along many themes. The Jackass met him in November 2006 at a German conference. He was actually quite arrogant and disagreeable, correcting me three times on how the Petro-Dollar was not a standard. My response each time was that it was a practical defacto standard of obvious nature, critical to underpinning the USDollar in global trade. Finally, my remark was more blunt, wondering aloud why the rest of the financial and investment community comprehended the defactor Petro-Dollar standard except for him. He turned the conversation into a useless exchange. We parted ways.
The Eastern Alliance will develop Eurasia as a gigantic trade region. The epicenters will be Germany, Russia, and China. The Jackass has mentioned the alliance before, to be joined at the right moment by the Saudis and Persian Gulf nations. The Saudis will bring with them the new features for crude oil payments. The Germans are the brains for architecture planning and engineering expertise. The Russians bring vast commodity and energy resources, with diverse pipelines for delivery. The Chinese bring tremendous wealth stored, a massive array of factories, and a motivation to unseat the American-Anglo power center. A consultant with ties to Asia from Central Europe offered a perspective. He has been a reliable source of information. He wrote, "China will not be able to shoulder this battle without Russia and eventually Germany being in an open alliance. Germany needs to be freed from the European Union handcuffs and all the other pointless politics in order to refocus and realign its political and economic interests. Russia is consolidating bigtime. The Western media try to paint a picture of a brutal regime suppressing its citizens. What a crock of CIA / MI5 bullshxx. Running a Russian aircraft into a mountain in Indonesia by manipulating the feed into the navigation beacon is nothing new, done recently. That is how they killed off Clinton's problem with Ron Brown in the Balkans. It is always the same game." Nasty geopolitical chess game in progress. The Clinton Admin was unraveling due to campaign fund violations, and Brown was set to testify on several criminal investigations. As for the recent mass murder event, the guest list was top Indonesian airline and top Russian aircraft executives, plus the crew. The motive was to discredit the new Russian passenger aircraft.
## SIGNPOST SAYS GAME OVER
◄$$$ THE ENTIRE USTREASURY AND DERIVATIVE MARKETS ARE COLLAPSING TOGETHER, THE INEVITABLE FINALLY HAPPENING. A CONFLUENCE OF FACTORS HAS PUSHED THE TOP-HEAVY STRUCTURES TO BREAK ALL AT ONCE. DAMAGE IS ENORMOUS, NON-LINEAR IN ITS EFFECT, AND UNSTOPPABLE. EVENTS WILL GO OUT OF CONTROL VERY SOON IF NOT ALREADY. THE JPMORGAN LOSSES ARE CLOSELY TIED TO THEIR VULNERABILITY IN THE FINANCIAL SYSTEM THAT IS COLLAPSING. THEY INCUR LOSSES TRYING TO ASSIST DEUTSCHE BANK IN EUROPE. THEIR LOSSES ENABLE THE GOLD TO BE REMOVED FROM THE CARTEL VAULTS. IT IS ALL TIED TOGETHER. $$$
A brief preface on climate change. Something has changed in the last couple weeks. Usually, since JPMorgan is exempt from proper accounting, it need not disclose anything on its losses in the interest of national security. All of the banks are given a pass by the liberal FASB rules. My belief is that a higher power has decided enough is enough, and it putting its boots on the banker necks in New York and London. The financial crime wave has finally forced the higher power to begin retaliation, cleanup, arrests, and prosecution. JPM CEO Dimon has been given orders to talk. Their entire loss episode would have been swept under the rug in 2009 or 2010. My belief is the higher power comes from the East, and involves truly staggering wealth that has been reawakened, turned vengeful. No further details here, but consult with Benjamin Fulford and his latest writings. Maybe the Eastern force sold USTBonds enough in March and April to cause the great disruption to JPMorgan and their derivative book, just to wreck them on leverage and to trigger the unstoppable breakdown process.
Hidden behind the burning curtains are Fannie Mae and AIG. Fannie is at the center of interest rate hedges for their $3 trillion mortgage book. AIG is at the center of derivatives that went bad. My speculation, along with Rob Kirby, is that both Fannie and AIG are locked in a twisted tower that is collapsing with JPMorgan and Deutsche Bank, a conduit tie-line that causes mutual damage. The sovereign bonds, derivatives, and big Western banks are collapsing together. The entire monetary system is collapsing. The Eastern forces recognize the threat, respond to the imprudent Iran sanctions, and will arrive on stage with alternatives which will topple the monetary system further, when it appears not to function any longer.
Friend and colleague, genius forensic analyst Rob Kirby wrote, "This leads me to speculate as to whether Deutsche Bank's most recent financial troubles might be derivatives related, perhaps suffering from the same thing that is now affecting Morgan." My excellent banker source with US-German connections, who revealed that JPM losses are at least $18 billion, pitched in "SPOT ON" as reply. The Jackass inquired as to whether JPM had lost money trying to defend a large hedge firewall for Deutsche Bank, and the source said yes. This is very complex and interwoven. So as it unravels and collapses, it is all happening together across the Western nations. Dimon is dead wrong and a liar to claim their losses are isolated, not a broad Wall Street problem, and is a one-off event.
In 1999, Bankers Trust was acquired by Deutsche Bank. The Bankers Trust colossus, much akin to AIG, had been the primary derivative underwriting bank, but they almost died from the Long-Term Capital Mgmt fiasco in late 1998. Some phony story was promulgated about their distress. They had been called The Fed's Bank by the financial sector. No US bank was large enough to acquire BT, so the Bundesbank through Deutsche Bank stepped in. They took on a big toxic load that has erupted at the surface finally. The JPM losses relate to the sovereign bond market (both USTreasury and Euro Govt Bonds). The D-Bank problems are directly tied to the JPMorgan problems, as losses will be of large magnitude and deadly. The entire system is collapsing. Leverage has been abused for too long. The Western banking system has been kept together like a pack of Zombies since its death event in September 2008, and the Powerz can no longer hold it together. CEO Dimon looked visibly shaken, worried, and scared in a sequence of press conferences. He also might be slightly unaware of the impending collapse. We are entering the land of non-linear outcomes due to de-leverage process and absent capital during margin calls enforced by angry wealthy groups hell-bent on revenge. JPM and DB have many enemies.
The triggers for collapse have been the longstanding 0% enforced by the USFed via Interest Rate Swaps, the gigantic annual $1.5 trillion USGovt deficits to finance, plus the absence of foreign creditors, the heavy reliance upon the bond monetization (QE to Infinity), the suspended accounting rules for the Wall Street banks, the broken European sovereign bonds, the strong fluctuations in Euro Bond yields, the bust of Greek Govt Bonds, the strains from Spanish and Italian and recently French Govt Bonds, new elections of political leaders who vow to end austerity budget measures, and the decision by German bankers to extend no further loans. Consider the JPM woes to be backlash for attempting to dismiss the Standard & Poors downgrade of USGovt debt, and the heavy reliance upon Interest Rate Swaps to create artificial demand for USTBonds that did not exist, has not existed, and will not exist.
No flight to safe haven has occurred, all being IRSwap congames filled with press propaganda. The Wall Street maestros conjured up huge artificial USTreasury Bond demand from thin air, reported in the Hat Trick Letter. But the higher power has stepped in, with great wealth, great influence, great resources (money and people and agencies). They are meting out justice. The dumbfounded regulators (USFed, SEC, CFTC, FDIC, OCC) are not so clueless as complicitous, part of the problem, having assumed that JPM is expert, in control, and protecting the US financial markets. They are all the guilty parties, which work closely with the big US banks in their artificial structures and support devices that have gone amok in an extreme way. They will all be on the defensive in the coming year when the full breakdown occurs. If truth be known, the control centers are ESF, NSA, even BIS.
Turd Ferguson reported from a Andrew Maguire conversation that 100 metric tonnes moved out of London alone in a recent week, all heading to Eastern locations. The drain of the gold cartel banks is in high gear, stripping them of their ability to defend against their own gigantic illicit short futures positions. Great preparations are being made for a new gold-backed trade system and barter system. Some severe shock waves are coming. The USDollar is soon to be isolated, dismissed, and avoided by global financial sectors. The US-bound savers will suffer from both a big devaluation and also a forced migration into USTBonds for pension funds (401k, IRA, Keough). The search for risk-free or low-risk investments outside the sovereign bond arena, outside the big bank risk for derivatives, will eventually lead to a tidal wave of gold investment. Much more on the JPMorgan plague, actual stories, and collapse are found in a following full section. JPM is too big to fail, too big to control, too big to govern, too big to confront, too big to punish, too big to liquidate, too entrenched to change. Repair and remedy will not be the priorities. Instead, the priority will be containment and preserved power. Therefore the giant colossus will fall in the crowded urban area, complete with grand destruction in the powerful collapse, with many innocent businesses and people killed or ruined.
◄$$$ ALMOST GAME OVER, A MOST ENCOURAGING NOTE FROM INSIDE THE FOCUSED TOUR DE FORCE BATTLE. ENORMOUS AMOUNTS OF PHYSICAL GOLD HAVE BEEN REMOVED FROM THE GOLD CARTEL MEMBER BANKS TOTALING 5000 METRIC TONNES WORTH OVER 1/4 OF A $TRILLION. GOLD BULLION IS BEING SHIPPED FROM WEST TO EAST. A MAJOR BATTLE HAS CONCLUDED. WATCH FOR TELLTALE CLUES OF SYSTEMIC BREAKDOWN. THE TIME HAS FINALLY COME FOR THE END GAME, WHICH CANNOT BE CONCEALED ANY LONGER. $$$
The grandest transfer of wealth in history is reaching a climax stage. The German gold trader source added a chilling commentary. Notice the reference to a $100 billion loss, his eventual estimate in the coming several months. He wrote, "The $100 billion JPM loss might still be much too low, as there is an event driven component in all of this. One link in the chain breaks and the wheels come off. If Kirby takes the time to calculate through this incident, he might very well come up with a high multiple of the $100 billion or even $trillions in eventual losses for the big US bank. There are no end buyers for these derivatives, all artificial creations. It is a mega scam that even dwarfs Ponzi, since it is the entire bond market structure that underpins the monetary system. The question is how much of these losses will be disclosed, like an iceberg coming to the surface. It is safe to assume that big changes are in the offing. There is always the point reached where enough is enough. The American-led economic war against Persia was probably the final trigger for some real decision makers to put their foot down and tighten the noose to the point of suffocation. It will get very ugly very fast in an event acceleration. The increase in off-market substantial gold transactions, being solicited at the very top, is absolutely stunning to see. The Boyz need liquidity and they need it fast. The only asset they can turn into cash is their gold bullion stashed away in various locations. The current events are from a new dimension not seen in past years."
The Paradigm Shift East is in full force. The movement to end the official false paper front of monetary management could come. It will not end, but be revealed and prosecuted. Expect Nuremberg Banker Trials in the future. Great volumes of gold bullion are moving. When my gold trader source was asked how much gold has moved from West vaults to East vaults since the Leap Day Massacre on February 29th, he responded without hesitation, replying 5000 metric tonnes. That is five thousand metric tonnes of gold bars worth between $250 and $260 billion, half as much as Fort Knox housed when it actually held the national treasure. It has since been looted. In a highly illustrative and shocking (positive) message the same veteran gold trader explained "I have seen some major quantities of metal being moved in my many years. However, what I am seeing right now is unprecedented in quantities and capital being moved. The East is converting its unlimited liquidity into hard assets of which Au and Ag are only one core component. The Western depositories are currently being raided at discounts and not premiums, since the time window that has been created allows to do that. However, that window is closing swiftly and once closed, the price for metal will go through the roof."
One must wonder what the time window mentioned is. Let me speculate. Perhaps time before the Euro crisis takes a major planned turn (see German-led new Euro Mark currency). Perhaps strictures extending from Basel 3 bank rules in force. Perhaps some time constraints on derivatives. Perhaps some threat to dump USTBonds by China, and convert a portion to gold bullion. Perhaps some urgent directive from a higher authority. After a seeming tough messy but productive week in the gold trading trench warfare, my reliable gold trader source offered a summary with more expressed satisfaction than ever conveyed in all the years we have been in contact. It is not completely over as a war, but the Battle of the Bulge in Europe and Battle of Midway in the Pacific seem concluded, each a major victory. This message is of chest pounding with a foot atop a dying victim. The gold price is surely depressed, but the gold cartel is reportedly mortally wounded. The path upward might be cleared to the point of ending this latest round of price suppression. The Good Guys have finished a mission for this round.
The gold trader has a keen knowledge of WW2 and hardened experience from Russia in the 1990 decade. In a final highly illustrative and shocking (positive) message, he wrote "This is great. The market is cleaned out when it comes to physical. The purchases to drain the cartel are 1000 MT [metric tons] per shot/transaction, 5000 MT in all. The Boyz are illiquid and have to sell at budget bargain prices. The ones they used to patronize and torment are now screwing them back using a telephone pole up the hind quarters with the tip wrapped in razor wire. No prisoners are being taken. I have never seen such merciless executions to that magnitude in my entire career. The target banks call for help and protection, not knowing that they are actually confronted with their executioners. It must be a lonely feeling when the only thing they sense is their own warm blood running down their bodies. They know they are done. It is like the final scene in Enemy at the Gates where Vassili Zaitsev, the legendary Russian sniper, out-maneuvers the German Major Konig sharpshooter. The major takes off his cap, looks at Zaitzev who put a bullet right between his eyes. The real players know when it is game over. However, we shall see fundamental change unfolding and developing in exponential gold price swings, both ways, up and down." He forewarns of very volatile price movement as the gold cartel turns desperate and loses control. The gold price movement will not be straight up, but scary volatile.
Hence around five major enormous transactions were executed in the last several weeks, totaling a mindboggling 5000 metric tonnes, as the gold price was held down until the big sales were completed, draining the gold cartel. The Eastern entities were not bidding up the gold price, but rather holding it down to complete the sales. The current round is apparently over, or soon over. Margin call mop-up exercises are in progress. Major losses are coming from the broken structures that work with excessive leverage to hold together the artificially priced systems in an array of phony facades. Evidence of the JPM wall cracks and deep damage will not be so much admissions of loss. It will be broken structures and pieces breaking over there and over here and every which way. Watch USTBond yields, a Spanish Bond auction complete failure, a rising Societe Generale credit default swap rate, a rising Lloyds of London credit default swap rate, an unstable higher LIBOR swap rate composite, a Deutsche Bank deposit flight, or a $100 single day jump in the Gold price. Telltale signals come.
This note is encouragement to the extreme for investors to stay in the game, hang onto the gold & silver bars, and wait for the rise like a phoenix in precious metals price, since the resistance by the cartel has been significantly removed to the point of assuring victory with a heap of confidence. The Eastern Coalition has transferred over one quarter of a $trillion in gold bullion in under three months from the Western gold cartel camp and munitions cache. They are left defenseless in New York, London, and Western Europe, unable to stop what comes, which in plain terms will be a rise in the gold price that zooms past $2000/oz and finds its rightful level based on value and equilibrium free from the tight grip of suppression. Some important bank failures are coming, including Deutsche Bank. If DBank fails, expect JPMorgan to be rocked and shaken to its core with severe crippling losses. The Jackass cannot promise a date when the historical phoenix rise will occur, but it is on this side of the horizon, hardly the distant future. The outcome is assured. It is unclear what the held laurels will look like or what the breathed air will be like or what the viewed sunset will be like, relaxing and healing from the long battle waged, sitting on the porch sipping iced tea or Cuba libras or whiskey sours. Details on the denouement are not at all clear. More battles will come, but maybe more akin to cornering rats with POW gatherings. See the movie saga background and details (CLICK HERE).
◄$$$ CONSEQUENCES OF REMOVED PHYSICAL GOLD METAL FROM THE CARTEL BANKS ARE EXTREMELY POSITIVE. TAKE GREAT ENCOURAGEMENT IN THE POTENTIAL THAT LIES AHEAD FOR MUCH HIGHER PRICES, AFTER THE IMPEDIMENTS ARE CLEARED AND OBSTACLES PUSHED ASIDE. $$
The important element in the gutting process is the gold cartel cannot defend their naked short gold position without gold physical metal. They use leverage nowadays to defend it, and lately extreme leverage since their base is shrinking significantly. Without the base collateral for leverage, they are vulnerable to attack. Without the base physical gold collateral for defense, they are doubly vulnerable, if not helpless. Down the road in the near future, the price attacks will be on the upside, since the Eastern Coalition will not see the ample stacks of gold bars in London or New York or Swiss to pursue in raids with low-ball price held with brute force. Then the gold price will zoom past the $2000/oz price. Silver will tag along for the ride in a similar fashion, zipping past $80/oz. The incredulous will simply have to watch, wait, and see. The naysayers are worth ignoring, since they cannot explain a single event in the mounting crisis.
JPMorgan is capable of causing a financial false flag event like a virus to the US banking system blamed on Iran, after which several hundred thousand private accounts go missing when a big financial firm is killed for looting purposes. The booty from the theft might be totally inadequate for their cash needs, but their motive might be spite, revenge, and vile humors. They might dictate the USGovt to confiscate the personal retirement accounts and bank certificates of deposit, which do total well over $1 trillion. The sub-headline is clearly written on how the Leap Day Massacre set in motion the powers from the East with motives toward good, toward fairness, toward justice. They are not saints, but they offer a better system free from pervasive fascist elements. The West banking centers are dominated by the forces of evil fought in World War II, the white collar war criminals having migrated to New York, London, and Zurich. It is a time to be careful while enjoying the next chapter of a fast rising gold price, remaining out of the line of fire.
## JPMORGUE ZOMBIE PROCESSION
◄$$$ THE ICON JPMORGAN HAS SHOWN BIG CRACKS. THEY DEFLECTED ATTENTION AWAY FROM THE MONSTER ASSET BUBBLE WITH OTHER LIES ON THE LOSS AMOUNT. EXPOSURE IN EUROPE IS OVERSHADOWED BY EXTREME LEVERAGE AND PRESSURES IN THE USTREASURY MARKET. THE ZOMBIE COLOSSUS WILL GROW BIGGER AND MORE DANGEROUS AS IT LOSES MORE CAPITAL (BLOOD). JPMORGAN IS VULNERABLE TO EUROPEAN LOSSES, BUT WORSE, SO ARE ALL WALL STREET BANKS. THIS IS HARDLY A ONE-OFF ISOLATED EVENT. IT IS SECULAR AND SYSTEMIC. $$$
In preface, one must be clear. It is an impossible task to enforce 0% on short-term USTBills when new USGovt debt piles up as $1.5 trillion annually, which has continued for three full years. The violations of Supply vs Demand dynamics are too large in defiance to the natural order. JPM sits on massive toxic portfolio of mortgage bonds and sovereign bonds. JPM insures the rotten meat of bonds with derivatives. JPM embodies several big markets, and thus cannot hedge against itself unless done on another planet. JPM is a criminal organization that lies incessantly without conscience. JPM is dying but will not be permitted to die, instead to morph into a bigger ugly dangerous zombie. It will steal all the funds it can that are not nailed down, and do so with impunity or conscience.
A private European banker source confided that the JPMorgan loss is more like $18 billion, with some damage suffered from sovereign debt in Europe, acting as brokerage intermediary on behalf of Deutsche Bank. Gold is being drained from major European banks that surely include the giant Deutsche Bank. Their big banks are suffering from gigantic bond losses tied to Southern European nations (both sovereign and commercial). They are badly insolvent, and recently due to tighter reserve requirements, the LTRO backfire, the rejection of austerity budget measures, and the rising government bond yields, the big Euro banks are suffering from massive liquidity problems.
Wall Street bears systemic exposure to Europe, exactly like the big Euro banks. Since the Wall Street banks served last autumn as the primary lender to Europe, even for derivative underwriting to Europe, they constructed a liability cable line to Europe. The risk is fully shared, even with London banks. Late in 2011, the second Dollar Swap Facility was constructed (the first was 2009). That gave relief to the Wall Street banks. They stopped with the credit and underwriting around November, when the USFed stepped in. The Wall Street banks found themselves exhausted and over-extended. Clearly they appealed to the USFed to take control of the collapsing situation. JPM CEO Jamie Dimon lied through his teeth when he claimed the exposure by JPMorgan was not endemic across the big US banks. It obviously is. It is not a one-time loss, and time will prove. More major shocks are to come. Imagine all the problems caused by little Greece. The next round of bond crisis and debt finance will be centered on Spain, Italy, and France, which together are 15 times bigger than Greece.
The recent movement by Germany away from the bailout table was prompted by a realization that Italy alone was too big to aid. So the German bankers halted all relief efforts and the troubles really accelerated. Little Greece was just the preview sample in the window case. Dimon denies that this under-stated $2 billion loss is systemic across Wall Street, when obviously it is, extending to the German giant bank. JPMorgan is widely known to be the most risk averse member on Wall Street, which means other investment banks in South Manhattan will come forward with major losses. As with Greenspan the liar, concentrate on the topic in focus, ignore the words, expect the worst, in order to capture the true message. Dimon also claims this loss is an isolated event. It is clearly not and will be repeated. Go farther, and conclude that lack of liquidity might provide a Prima Facie case for motive to steal MFGlobal accounts by JPMorgan. Recall Bernanke claimed the subprime mortgage problem was both isolated and contained. It was neither. These syndicate bosses are accomplished chronic liars.
◄$$$ JPMORGAN IS DESPERATE TO CONCEAL A VAST DERIVATIVE BOOK LOADED WITH DECEPTION ON INTEREST RATES. THEY ADMIT THE EUROPEAN BOND ORIGIN FOR LOSSES, SINCE IT OCCURS ON FOREIGN SOIL WHERE THEY CLAIM THE SYSTEM LACKS STRENGTH, RESILIENCE, AND EXPERIENCE. THE Z.I.R.P. POLICY IS NOT DEFENSIBLE WITH GARGANTUAN ANNUAL DEFICITS TO FINANCE AND ABSENT BUYERS. THE WEIMAR STRAINS ARE STARTING TO SHOW, ESPECIALLY AFTER A WHIPSAW EVENT IN APRIL ON THE 10-YEAR BOND. LOSSES ARE AT LEAST 10 TIMES AS LARGE AS THE $2 BILLION STATED. WITH ANY MILD RISE IN LONG-TERM RATES, THE LOSS WOULD BE 50 TO 100 TIMES LARGER WITH EASE. $$$
In April the Bernanke Fed committed a blunder. In hopes to regain respectability, they talked openly about a return to normal interest rates. They described the early steps toward an Exit Strategy without using the label. They had been clever in fooling the bond market community with the Operation Twist, which was essentially continued Quantitative Easing, in covering foreign bond sales. The USGovt can never realize a return to normal rates, for reasons having to do with Interest Rate Swap contracts and USGovt borrowing costs. The IRSwaps would result in countless $trillions in losses. A move to 7% or 10% long-term rates, which makes perfect sense in the prevailing price inflation environment compounded by unaddressed $1.5 trillion annual deficits, and broken politcal apparatus to bring down spending, not to mention the endless costly wars, would cause in my estimation between $20 and $40 trillion in sudden losses from IRSwap contracts alone. Of course, much higher bond yields would send borrowing costs for the USGovt deficit toward the $2.0 trillion mark at a minimum. So rates cannot be permitted to rise, and the Interest Rate Swap contract must continue to be used. But more importantly, the attention must not come to the IRSwap ever. So JPMorgan lied and cited the European sovereign bond market and the derivative market linked to it. The deflected attention away from USTBonds, their plague.
The USFed is stuck at 0% official rate forever, as ZIRP will persist as far as the eye can see. Heck, Japan still is stuck at 0% after 20 years, and they had annual budget surpluses, an industrial core, and huge personal savings. The United States can expect no better, and in reality should expect a more foreboding path. The USGovt will be stuck with ZIRP and artificially low 2.0% long-term rates forever. The entire financial system will implode if an Exit Strategy were put into practice. Any justification of the exit from ZIRP and 2% long rates is lunatic and not based in anything rational or defensible. The USGovt will continue at 0% until the USGovt debt default, which will come in the form of a debt restructuring after more $trillions are tacked on, after the foreign creditors become avid net sellers, after the obvious deployment of the Printing Pre$$ is seen as crystal clear for the hyper inflationary device with Weimar nameplant. The debt default will come when the USDollar is no longer the dominant currency. It will come when the USEconomy faces the twin scourges of price inflation and supply shortage, since the USDollar will not be widely accepted in trade.
Consider events in late March. The 10-year USTreasury yield (TNX) rose to 2.4%, then came back to 1.8% all in the space of a few short weeks. In financial market parlance, it is called a WhipSaw. In no way did JPMorgan avoid losing money in interest rate derivatives, commonly leveraged 30:1 or more (even 100:1). The USFed helped push down the TNX to stop hemorrhage of JPM and Morgan Stanley. JPM alone owns a $80 trillion total derivative book, of which 82% are interest rate derivatives. The USTBond lies on the other side of the Interest Rate Swap contract. The remainder of the book consists of credit derivatives like bond insurance, known as Credit Default Swaps. JPM has 12% exposure in credit derivatives, lately dominated by Euro sovereign bonds in volume. With something like $65 trillion in Interest Rate Swaps on their books, the WhipSaw from 18 to 24 and back to 18 on the TNX probably choked the JPM neck into showing a blue face, or a pendulum swing to sever a leg. Blame has been admitted on the sovereign debt problem, but the much larger vulnerability comes from the defense of the indefensible 0% rate, aggravated by the $1.5 trillion deficits, during stormy seas that deliver WhipSaws. JPMorgan in no way wishes to bring attention to the derivative losses extended from USTBond defense of the ZIRP policy. It is a futile task that cannot be won. The Interest Rate Swap produces artificial demand, that the financial press avoids in propaganda stories. Demand for the USTBond has vanished. Look for a rally in long USTBond in order to take JPMorgan out of the cold troubled waters with ZIRP icebergs. It will happen without true demand. Thanks to Rob Kirby for the following chart.
JPMorgan is not alone in interest rate derivative exposure. The OCC reports JPM with $71.0 trillion in notional value, Bank of America with $68.5 trillion, Morgan Stanley with $52.2 trillion, Citigroup with $50.2 trillion, and Goldman Sachs with $48.3 trillion. They are called the Big Five. A gulf appears to the next player, with HSBC having $4.3 trillion in interest rate derivatives, followed by $3.3 trillion at Wells Fargo. Expect many more multi-$billion losses for the Big Five, who will also lie by not admitting the losses are due to defending the indefensible USTreasury Bond bubble at 0% with $1.5 trillion new supply each year, where the main buyer is the USFed in monetization programs and its backup buyer is the artificial Interest Rate Swap contract.
THE JPMORGAN LOSSES WILL GROW AND GROW AND
GROW. THEY ARE MUCH LARGER THAN ORIGINALLY
REPORTED, NOW ESTIMATED AT $5 BILLION. THE
INTEREST RATE SWAP BASIS OF LOSS IS PUBLICLY
DISCLOSED, AS THE JACKASS FOREWARNED. THE
ENEMIES OF JPMORGAN WILL FORCE GREATER LOSSES.
The admission of a loss is usually the start of a long arduous process. A contributor to LeMetropole Cafe run by Bill Murphy at GATA, made some great comments. It pertains to vultures. He wrote, "By the way, in business the first news of a loss is never the last news. The losses always grow, anywhere from 2x to 10x that first announced. Here is the bold print: All any hedge fund has to do now is know what large bets in what market that JPMorgan has on, and bet against them, because the other side of the table (from JPMorgan) has its so-called balancing acts trades now undone. Their hold cargo is on the loose! I guarantee every hedge fund manager in New York is working this weekend right now as this is being typed, looking for those counter positions to take." The pressure will force into the open the rest of the unstated JPMorgan losses, and add to them, putting momentum in the opposite direction. It is much like placing a crowbar in a crack and exerting strong force, precisely in the crack where it is most vulnerable. May we all wish JPM and its criminal executives the worst of possible fates, followed by legal prosecution, public ignominy, and banishment for life in the financial sector. Let them manage their own secluded prison system currency scheme based on cigarettes, or teeth.
Not wasting any time, the vultures have acted quickly, like in a single week to exploit the JPM advertised weakness. This is why the giant bank does not honestly state how ruinous their positions are, and admit they could easily suffer $100 billion in losses maybe by year 2013. The estimated trading losses suffered by JPMorgan Chase have surged in just days, surpassing the bank's initial $2 billion estimate by at least $1 billion, according to people closely familiar with the criminal organization. They admit a $3 billion loss total, but also difficulty in measuring the loss. It will be a $5 billion loss before July. Even CEO Dimon revealed how the loss figure could double within the next few quarters. Hedge funds and other investors have taken advantage of JPMorgan's distress, fueling faster deterioration in the underlying credit market positions held by the bank. The crowbar is being applied, and will be yanked with greater force to widen the crack as time passes and their true vulnerability is learned. See the New York Times articles (CLICK HERE).
The story continues on expanding losses. The Wall Street Joural reported the JPM losses are estimated to be at least $5 billion. Perhaps more interesting, the WSJ states that Jamie Dimon personally approved the Delta-hedging of its Interest Rate Swaps positions which has resulted in the massive derivatives losses for JPM. Here is the significant nut here. The losses extend from control of the USTreasury Bond market, not Europe. The losses are from the challenges to manage the USTBond market using the powerful Interest Rate Swap contract mechanism. Soon analysts will conclude the demand for USTBonds has been artificial all along, with no flight to safety. The original disclosure by CEO Dimon was the deflection story about hedges on European sovereign bonds. As the Jackass openly surmised a week ago on widely covered Turd Ferguson radio interview (CLICK HERE), the losses were from IRSwaps. Sometime next year, the true loss figure will be over $100 billion as sure as the calendar turns pages. See the Silver Doctor article (CLICK HERE).
◄$$$ JPM STOCK HAS BEEN BRUTALLY HIT, AND DESERVEDLY. THE EQUITY LOSS AMOUNTS TO $36.5 BILLION SINCE THE END OF APRIL (22%), WHEN INVESTORS STARTED TO SNIFF BIG PROBLEMS. THE BIG BANK WILL HAVE MORE DIFFICULTY IN MANAGING ITS MANY MARKETS, SINCE IMPLIED LEVERAGE JUST ROSE SIGNIFICANTLY. $$$
◄$$$ BOND PRINCIPAL SWINGS ARE NON-LINEAR OR PROPORTION TO THE BOND YIELD MOVEMENT. THEY ARE MUCH REDUCED, BUT ENOUGH TO CAUSE SIGNIFICANT DERIVATIVE DAMAGE. A 3% TO 4% MOVE IN BOND PRINCIPAL CAUSED FRACTURES AFTER THE 30:1 LEVERAGE IN INTEREST RATE SWAPS. $$$
Some perspective must be gained on the bond valuations and their effects. The 10-year USTreasury yield went from 1.8% to 2.4% and back to 1.7% since March. That is a 30% to 35% move in the TNX yield index, but the principal values dont move in similar ratios. Long ago, when studying the available profit in bond ownership, when 0% was approached, the Jackass learned that the answer is not much, but some. Better than losing money in other risky assets. Many believe that the swing resulted in a large move in the principal value. That is incorrect. When the bond yield is low, the compounding effect is low, and therefore the principal value swing is minor but enough to render damage. Consider the actual numbers and the math. The UST went from principal value 131.2 down to 127.5 during the rise in the TNX, but a move of only -3.2% down. However, it is enough to completely upset JPM and cause great disorder in their Interest Rate Swap book, a narrow giant awkward tower. The swing back up saw a move from 127.5 to 133.1 which is bigger, like a +4.4% rise. Add in the 30:1 leverage on the moves to see a 100% swing after leverage is accounted for.
The JPM Tower of Interest Rate Swaps is $71.04 trillion high, as per the Office for Comptroller to Currency in their December 2011 tally. Therefore, even 3% does big harm after great leverage as they attempt to enforce a 0% rate in a storm of $1.5 trillion annual bond supply whipping like high winds. Expect the JPMorgue losses related to IRSwap management to be well over $5 to $10 trillion in a couple years. Regardless, the JPM Tower is broken and will fall to the ground in an unstoppable process. The Jackass is very grateful to be part of a team that takes in reliable information from a reliable German banker source, processes it with the help of Rob Kirby using his bond trading desk and derivative experience, so that we can dismiss the official story and project losses accurately. It is important to comprehend the math of bond principal values, and to have the math side straight and correct. Keep open the possibility that the USTBond selloff in March might have been engineered by the Eastern Coalition to trigger the JPMorgan breakdown.
◄$$$ A MONOLITH VAMPIRE EFFECT HAS BEEN AT WORK FOR THREE YEARS. THE SCOURGE UPON THE FINANCIAL STRUCTURES WILL CONTINUE, SINCE JPMORGAN IS THE OPERATING ARM OF THE USFED ITSELF. IT WILL NOT BE ALLOWED TO FAIL, BUT INSTEAD BECOME A GIGANTIC ZOMBIE MONSTER WITH EVEN MORE RIGHTS TO STEAL, DECEIVE, AND DESTROY. $$$
In short, JPMorgan will not be killed by natural forces or by enemies. It will not die. It will not fail. It will suffer mortal wounds and endure a pathogenesis, a path toward the cemetery. It will continue to be a combination of a Zombie, a Black Hole, a teetering Tower, and a free wheeling Monster on the loose. Pick your metaphor. Its insolvent condition will grow worse. Its sucking power to remove wealth in the black hole vortex will grow worse. Its hunger and appetite to feed off wealth bodies will grow worse. Its desperation will grow worse to the point that criminal activity will occur more often in the open, like with MFGlobal. A false flag attack on the finance sector could enable a great heist. As their condition deteriorates in accelerated fashion, they will force the USFed into the next higher gear of extreme hyper monetary inflation from the official hidden rescue in order to preserve their banking and political power.
The JPM house is the operating arm for the USFed, which should never be kept from focus. It has morphed into a Weimar beast but with admiration and adulation. Therefore it is above the law on naked futures shorting, above the law in oversized positions, above the law in MFG account theft, above the law in mortgage bond fraud. In fact, JPMorgan manages the Iraq Export Bank in Baghdad, which serves as the narcotics money laundering location for the Afghan heroin. This is a powerful dangerous criminal syndicate organization not subject to laws, steeped in privilege, showered with executive bonuses. So the syndicate must save JPM in order to save itself. The USFed balance sheet is intertwined with JPM balance sheet, not subject to the proper accounting rules, as dictated by the previous administration, in the interest of national security. The deep JPM criminality is intertwined with the USGovt itself.
◄$$$ THE DE-LEVERAGE DAMAGE HAS BEGUN, INFLICTED UPON A BADLY WEAKENED INSOLVENT SYSTEM WITH TWO MAJOR PILLARS IN DEEP DECAY. THEY WILL NOT BE PERMITTED TO FAIL, SINCE THEY CONTAIN THE RULING BODY AND THE CENTRAL BANK AND USDEPT TREASURY DUO. $$$
For prefatory comedy relief, recall Bernanke said on May 10th that US banks have plenty of liquidity, a bold lie proved false by the JPM loss announcement. In a nutshell he said, "Banks are in great shape, the crisis is over, all have good liquidity." Bernanke has been as wrong consistently as he is revered. Recall also the direct objection made by CEO Dimon against the Volcker Rule, since wonder boy wanted to avoid the embarrassment of such major losses, even if the reality is almost 10 times bigger for the loss. Recall the pressures from Basel 3 Rule on reserves management, putting banks in a difficult position that could only lead the casual observer to conclude that the Basel castle dwellers wish to collapse the system in order to install the next level of fascist rule. Italy has been captured. The US official institutions will survive like JPMorgan and GSax, but they are like the ugliest biggest fruits on a dying vine, sucking vitality from all other fruits in true vampire fashion. The Matt Taibbi image of vampire squids comes to mind.
The US is heading for the Third World, with some strong monoliths to guard the gates and control the doors to the syndicate of waste, fraud, counterfeit, and ruin. External events seem incapable of halting the bleeding, in a grand hemorrhage process that will conclude only with a USGovt debt default. Despite the wonderful glowing report by Bernanke on JPMorgan as having good liquidity, Fitch Ratings disagrees. They downgraded both JPMorgan on its short-term and long-term debt, with the latter falling to A+ from AA-. The country's largest bank by assets, JPM was also placed on ratings watch negative. Fitch said it views the $2 billion loss as manageable but added that "the magnitude of the loss and ongoing nature of these positions implies a lack of liquidity" in direct contradiction to the grotesquely incompetent Bernanke as central bank head. Rick Rule believes JPMorgan has the potential to bring down the global financial system in a worse chapter than in late 2008. See his interview on King World News (CLICK HERE).
◄$$$ THE LETHAL EFFECT OF MUTUAL DERIVATIVE RISK COULD SOON BE SEEN. THE NETTING ON DERIVATIVES IS DESCRIBED BY WALL STREET AS NEUTRAL, REMOVING RISK. INSTEAD IT IS MUTUAL DEADLY RISK WHEREBY BOTH PARTIES STAND RISK OF FAILURE, UNABLE TO HOLD EACH OTHER UP. $$$
The JPMorgan loss exposes a hidden risk not mentioned even by the solid analysts. Remember all the nonsense about derivative netting, whereby Bank X covers Bank Y which covers Bank Z which covers Bank W, rendering all neutral and aok. Not in this world!! The JPM loss will lay out as vulnerable some counter-parties no longer protected by JPMorgan as they begin to bleed capital and whittle away the base from which to underwrite risk. Soon will be exposed how both sides are either dead or dying. They are not both net neutral, but rather both at risk of sudden vanish of capital. Imagine two men hanging by the neck on two tree limbs side by side. Observe two tree limbs, two men, same rope, opposite ends, in counterweight. They are net neutral in the weight and force, but they are both at risk of a quick death. It is hardly an offset that is net neutral as described.
◄$$$ THE POWERZ ARE SHOWING HOW OVERWHELMED THEY ARE. THE NEXT CHAPTER HAS BEGUN MARRED BY RAPID CAPITAL LOSS AND MIDSIZED BANK FAILURES. THE PROCESS REQUIRES A TRIGGER, AND THE GREEK DEBT DEFAULT WILL BE SUCH A TRIGGER. SPAIN HAS THE CAPABILITY TO SERVE AS A TRIGGER ALSO, ONE THAT MIGHT OCCUR SIMULTANEOUSLY. THE POWERZ CAN NO LONGER CONTAIN THE COLLAPSE AND SUPPORT THE PLATFORMS. $$$
The Powers That Be are overwhelmed and cannot manage what is happening nor what is coming. The system is too complex to monitor, analyze, and control, like herding cats in an open field. The Jackass has owned cats. Weakness begets weakness, as the illiquidity has given license for fire to catch and spread. A unique battle is coming next, where JPM attempts to prey on its clients and partners, while its enemies attempt to render more damage to JPM itself, seen as wounded and vulnerable. The colossus is utterly hated. They are dying but will not fall dead. They are dying in an endless process. The USFed can endlessly supply them with fresh tainted money, but that process will only have the insolvent creature grow. They are a Zombie to grow bigger and uglier and more larcenous and violent. Their counter-parties and clients are at grave risk of being targeted for thefts, frauds, deadly traps, deceptive games, and more. As control is lost, the monster will grow and roam and ravage, with public calls to contain it. The USGovt will do nothing, will continue to cover up its criminal activity, and will enable further rapacious deeds. Foreigners will be called upon to limit the damage. This is a combination of a Weimar storm and a Fascist raid heist during the collapse of a Paper Fortress. If this featured prospect event is repeated, then fine, since it must be repeated. Let this be a warning, a dire warning of a rampaging monster on the loose.
◄$$$ THE RECENT JPMORGAN LOSS COULD BE AN INDIRECT EFFECT OF THE EXTREME FAILURE IN LONG-TERM REFINANCE OPERATIONS (LTRO) DESIGNED POORLY BY DRAGHI AT THE EURO CENTRAL BANK. MANY BIG BANKS ARE SUDDENLY DEALING WITH ACUTE ILLIQUIDITY ON THEIR NEWEST POSITIONS GONE BAD. $$$
This line of analysis is relevant only for the fraction of the official JPMorgan story where their explanation is accurately true. Blame by the giant bank is largely placed on risk hedge contracts against sovereign debt failure, but given the movements, the true story seems more like trying to push the JPM weight around and squeeze profit from the world markets in an effort that was resisted. JPM executives jump to justify their trading activity as mere hedging to alleviate risk, but even Senator Carl Levin acknowledges their style adds to risk, not lessens it. My gut feeling is that the European sovereign debt distress accounts only for 10% of the loss effect. If the actual loss was indeed $18 billion, then perhaps the admitted loss of $2 billion pertains only to the 10% fraction disclosed. The rest is explained by my analysis on USTBonds and IRSwaps.
Nonetheless, follow the argument to reveal yet another extreme point of bond market breakdown across the Atlantic. A market run on the big Euro banks is in full force. The JPMorgan losses are in part explained by the Euro sovereign debt run, but also by enforcement of the Interest Rate Swap to maintain the 0% official rate. The ZIRP is desperately needed and cannot be deviated from, or else the entire Paper Fortress is yanked down hard in a gravity event. The ZIRP policy of 0% enforces a bizarre environment with zero gravity that cannot be sustained with heavy objects floating. Focus should be given to the failure of the Draghi Long-Term Refinance Operation, which has resulted in some dead limbs on the JPM hydra. The plan was poorly conceived, badly designed, and dangerously administered. With focus on the JPM loss, not enough attention is given to the failure of the LTRO in providing a solution. That attention is beginning to gather momentum. Draghi should be ousted for its failure in the first volley dealt by the GSax preppie lieutenant at the Euro Central Bank.
◄$$$ ROB KIRBY PROVIDES A FINE FINANCIAL FORENSIC ANALYSIS IN REBUTTAL OF THE JPMORGAN OFFICIAL STORY. IT IS REPLETE WITH LIES, DECEPTION, AND DEFLECTION. THE FALSEHOODS COULD BE PROVED IN THE NEXT SEVERAL MONTHS AS OTHER BIG WALL STREET BANKS SUFFER SIMILAR LOSSES, TO PROVE THE JPMORGAN ORDEAL IS NOT A ONE-OFF EVENT AS CLAIMED. DIMON AND HIS FELLOW EXECUTIVES PREFER TO DEFLECT BLAME ON EUROPE, WHEN THE USTBOND STRUCTURE IS BROKEN, A WEIMAR CREATION, WHOSE DEFENSE WILL LEAD TO ADDITIONAL MAJOR LOSSES. $$$
A qualification, as Rob Kirby has several years of bond desk experience. On the job a decade ago, he revealed and embarrassed Canadian bankers who were unaware that Interest Rate Swaps contain an actual bond created to form demand on the other end. The other side is a bond built from artificial demand. As a result of his work and exposure for the wobbly element of IRSwaps, the Canadian shops were shut down by Wall Street, much like a renegade is cut off. Rob Kirby knows the bond market, knows the derivative market, knows the supporting structures behind the walls, and is a great financial forensic analyst. He wrote a sequence of rebuttals to knock down the complete falsehoods propagated by JPMorgan and their criminal executive team.
"Regardless of what the mainstream press and Jamie Dimon are saying, I do not believe them. Remember last month Blythe Masters told CNBC that the JPMorgan derivatives book was customer driven. That was a complete lie and misdirection too. It amazes me to this day that nobody in the analyst community asks why the JPMorgan derivatives book is $80 trillion in notional, when by their own admission in Call Reports to the OCC, there are virtually zero customers for any of this garbage." The derivative book is to manage the entire interest rate structure at 0%, to control the gold & silver market, to enforce the supremacy of the USDollar. Never does a big bank hedge against its entire customer positions, a pure deception. JPMorgan finds itself in an awkward position since it forms several important markets. JPM is the market, which enables rigging. In the case of the Interest Rate Swap, they have no counter-party in USTBonds. Instead, they manage the 0% official rate against the heavy weight of annual $1.5 trillion debt security issuance. The Supply & Demand equation is thus suspended, as in zero gravity.
"If credit conditions in Europe had really changed enough to create the adverse situation described, this would have been reflected in a much bigger move in European government bond yields, much higher. This has not happened. In fact, over the six-week time period in question, the Greek 10-year yields have almost been cut in half, from 35% to 20% roughly. The French 10-year yields went from 3.0% to 2.8%, and Italian 10-year yields have oscillated between 5.0% and recently up to 5.5%. This is a USTreasury bond story." The JPM excuse laid out on the last six weeks does not stand up against the simple data. The turmoil in European sovereign bonds is not there, not sufficient to cause $2 to $3 billion in losses. Yet few bank analysts even notice the obvious deception. They prefer to place blame on Europe, thus deflecting attention away from the equally broken US bond market and their own client investments in the US markets. The USDollar supposed strength is also directly related to Euro currency weakness. Both currency sides are equally weak, wobbly, broken, and volatile.
"JPMorgan's customer is the USTreasury, in particular the Exchange Stabilization Fund (ESF), which executes their orders through the New York Fed trading desk. The ESF is above oversight from anyone or anything, including the USCongress. The OCC tells us that at December 31/2011: '81% OF ALL OUTSTANDING NOTIONALS ARE INTEREST RATE PRODUCTS, WITH SWAPS BEING A MAJOR CONSTITUENT, 6% OF OUTSTANDING NOTIONALS ARE CREDIT DEFAULT SWAPS.' The 10-year USGovt bond is a respectable proxy for the interest rate portion of Morgan's derivatives book. In the past eight weeks, the 10-year bond has gone from 1.90% to 2.40% and back to 1.80%. In trading parlance this is called a WhipSaw, 25% up followed by a steep 25 % down. I do not believe that Morgan was caught in sudden one-way move on credit spreads, since they are the market. WhipSaws are where big trading houses have historically had their biggest losses. I suspect this problem is systemic and we should soon learn that it has affected Citigroup, Bank of America, Morgan Stanley, and Goldman Sachs too. I expect all these other shady institutions to lie about the source of their losses too."
The finger is directly pointed at USTreasury Bonds, which have experienced dangerous volatility with little attention noted. The massive Interest Rate Swap complex with its heavy leverage cannot easily manage such a disruptive storm without loss. Imagine a 200-story tower with inadequate foundation in the midst of high winds. The Euro bond story is false. The USTBond story is more credible. In no way does JPM or the USFed wish to bring attention to the IRSwaps, the ZIRP, or the gaping USGovt deficits. They are defying gravity and lying boldly. Hidden also are needs by Fannie Mae to keep a lid on interest rates, their mountain of mortgage bonds another asset bubble adopted by the USGovt. Hidden still are the needs by AIG to keep a lid on derivatives, in the unregulated toxic swill arena.
◄$$$ THE INVESTMENT COMMUNITY AND EDITORIAL ARENA HAS PITCHED MANY OPINIONS. THEY SCREAM OF DISTRUST OF JPMORGAN AND THE BROKEN SYSTEM. WHALEN IMPLIES THAT THE JPMORGAN SHOP IS SUFFERING FROM REORGANIZATION AND MIGHT BE LOSING CONTROL, AS IT REACTS TO THE VOLCKER RULE. THE VAST BOOK CANNOT BE MANAGED IN A CLEAN MANNER, TOO COMPLEX, TOO LARGE, IN A WORLD SUBJECT TO TOO MANY CONTROLLED MARKETS. THE APPARATUS IS BREAKING DOWN IN ACCELERATED SPEED. $$$
Chris Whalen is one of my favorite bank analysts. He is co-founder of Institutional Risk Analytics and works at Tangent Capital Partners. His bank analysis is usually very solid and expert with unusual excellent insights. He has recently challenged Wall Street behavior to the point of inciting retribution. He had some thoughts on the JPMorgan loss incident. He said the following during a CNBC interview. Before long, he will not be welcome on their news show due to his honest critical commentary.
"Not surprised by the size of the loss or source. You cannot be consistently right when you trade derivatives. There are times when the relationships you think exist are badly wrong, with disastrous results. But I wonder how much Dodd-Frank [financial regulatory overhaul], and the Volcker Rule [limiting proprietary trading] contributed to this outcome. Lot of change underway inside JPM. The irony here is that the media and investors alike have attributed magical, superhuman powers to Jamie Dimon and his colleagues. But JPM is like everyone else, just a partial monopoly. The interesting thing though is to see them screw up in structured products. Again, given the risks the bank takes, one should not be at all surprised to see this type of event. It just shows how volatile and unpredictable is the investment side of the house. The other point is that these losses by JPM are entirely a function of the way that exotic derivatives work, for which there is no cash basis (like oil or gold) to create risk that would not otherwise exist. The losses by JPM are indeed self-inflicted as Dimon said, and entirely speculative.
Over the past couple of weeks, we have been hearing of a change of direction for the CIO group at JPM. As I noted here, dozens of people have been let go from this area in the past six months due to the Volcker Rule. The media does not comprehend this part of the story for some reason. The JPM CIO area had traditionally positioned the book to make money in volatile markets, but net short to align with the net long book of the CIO in JPM's vast securities portfolio. Press reports recently have claimed that JPM was shifting the trading book run by 'The Whale' [Iksil] in London to a net long position. If so, then JPM obviously would not be hedging the portfolio anymore, and would actually be increasing the overall risk of the group. Not only would this put them at risk for a big loss, but if The Whale's activity was not a hedge anymore, and rather trading risk, then it is not clear that this activity would be permitted under Volcker. Press reports on JPM and The Whale badly underestimate the impact of the Volcker rule on the trading operations of the large banks. But Jaimie Dimon seems to have handed his head to Chairman Volcker and the advocates of regulation with this error."
A colleague named George from Chicago has extensive experience in the commodity and bond pits. His comments are paraphrased. Each basis point in the JPMorgan CDSwap costs them $200 billion. It just rose 7 bpts to mean $1.4 trillion. They have an $80 trillion derivative book wrapped endlessly amongst a handful of entities. Ever since 2008, the banks have not been so much under-capitalized, but rather very much catastrophically broke. At least $20 trillion later in USFed dispensations, and they are more broke. Imagine a broken Daisy Chain or a Japanese nuclear reactor as water levels fall. All the synthetic bond creations are blowing up. They are all highly illiquid entities with no market, no end buyer, designed to hold together the entire system with its artificial pricing. He said, "JPMorgan will be one of the major nexus points where the Daisy Chain of derivatives cross (blows up) time and time again. The networked chain in off-exchange derivatives has entered its destructive sequence. All the primary banks in the US and Western Europe are now heavily intertwined with USFed off-balance sheet manure [toxic paper]." What a great relevant image of a nuclear reactor losing its water cooling to describe the Western financial structures, from bonds to currencies to bank capital. The JPM tank is running out of water.
Some excellent articles are worth checking into. For a good layout of many details on how the world's largest proprietary desk is in the process of going bust, see the Zero Hedge article (CLICK HERE). The details are mind numbing and will make your head spin, more proof that the US financial sector does not add value to the global economy, but rather sucks capital from it. The Iksil trades became more momentum trades than hedges. JPM was burned. For a good description of the inner workings of the haywire structured finance mess, see the Zero Hedge article (CLICK HERE). Jesse provides a brief indictment of JPM as a rogue element that distorts and controls numerous markets. He openly wonders if a major scandal will ensue with JPM at the center, bigger than Enron and Lincoln Savings and Madoff combined. See the Cafe Americain article on numbers too big at last (CLICK HERE).
More information on The Whale Bruno Iksil can be seen as he drives prices every which way in reckless exercises as gigantic unregulated markets are moved in pursuit of generated private profit at market expense. The Whale has been beached but will remain marauding the waters. See another Cafe Americain background article (CLICK HERE) and a mainstream expose by the Wall Street Journal (CLICK HERE). See the Globe & Mail article on the fallout from three executives involved in the trading loss leaving the criminal firm (CLICK HERE). The exodus is soon to pick up speed, from both scapegoats and guilty parties, followed by those who wish to avoid being caught professionally in a storm not of their making, or a storm they had been ignorant of until recent months led to an awakening. Witness the Quickening of JPMorgan, a death process, a Zombie transformation, a Weimar broken clutch.
Lastly, hardly of least importance, the JPMorgan fortress is under attack by the Lilliputians. The past is catching up to them, as defrauded mortgage bond investors seek redress and remedy. The assumption of the Bear Stearns credit portfolio contained mountains of unresolved mortgage assets. The lawsuits are piling up. JPM decided to raid its Loss Loan Reserves in order to show nice quarterly profits above expectations. They did set aside some cash for litigation, but not nearly enough. This story will not go away. JPM has filed a Wells Notice as lawsuit claims have been made on $120 billion in assumed securities of various ugly types. See the Teri Buhl article (CLICK HERE).
◄$$$ SIMON JOHNSON OFFERS A HARSH CRITIQUE OF THE FINANCIAL SYSTEM AND SUGGESTS C.E.O. DIMON SHOULD RESIGN. HIS CRITICISM IS DIRECTED AT REGULATORY FAILURE, EXCESSIVE LEVERAGE, AND ABSURD STRESS TESTS. HE STRIKES AT POOR THOUGHT ON BANK CAPITAL MANAGEMENT AND BANKER INCEST. $$$
Simon Johnson is a British American economist. His current role is Professor of Entrepreneurship at the MIT Sloan Business School and a senior fellow at the Peterson Institute for Intl Economics. He believes the JPMorgan failure highlights the incompetence of the USFed as regulator, and even a corrupted USGovt. Here are several main points made by Johnson. See the Baseline Scenario article (CLICK HERE).
## GLOBAL TRADE REVOLT INTENSIFIES
◄$$$ A TRADE SETTLEMENT SYSTEM IS BEING DEVISED WITH ACTUAL DEVICES BEING CONSTRUCTED. THE MOVEMENT IS LED BY CHINA, IN RESPONSE TO ABUSES USING THE S.W.I.F.T. TRANSACTION SYSTEM AS A WEAPON. THE ALTERNATIVE SETTLEMENT SYSTEM WILL HAVE A GOLD VEHICLE, BE ENTIRELY DECENTRALIZED IN ITS USAGE. A MORE FULL DESCRIPTION IS NOT POSSIBLE RIGHT NOW. $$$
The wrong-footed abuse centered on SWIFT bank transaction as a retaliatory method against nations which conduct trade with Iran has resulted in broad counter-measures. The alternative trade settlement system is taking shape. Confidential word has come that Gold will be part of the solution, as part of a transaction vehicle that could become part of banking systems, perhaps only in overnight or short-term transactions. It will not be part of any actual barter program or platform, which is a totally separate matter. The barter program itself will also have a Gold core to handle the short-term funding requirements. The movement away from US$ in trade settlement is led by China. In general the Eastern nations are pursuing a path whereby trade settlement is no longer centered on the USDollar. A preferred method in a decentralized application is the plan. Indications are that the Eastern-led alternative will have a primary gold vehicle. The details cannot be described more fully at this time, but one should anticipate a type of financial vehicle for trade facilitation that could supplant the need entirely for the USDollar in payment settlements. Trade partners would be required to use the new vehicle, and thus not store USTreasury Bonds in such extreme volume. Witness the removal of the USDollar as the core for global trade settlement. The vehicle is taking shape. The details will be forthcoming.
The trade settlement itself is not a new SWIFT system, but something more radically different, on a path to unseat the USDollar from its trade settlement primary post and to remove the central office channels and gateways. A key element to the new system will be its decentralized function, enabling business to be conducted far from the monolithic system bound within the US$ structures currently. Imagine a trade deal consummated and settled, done on a few BlackBerry devices by several parties standing in four different countries, with no connection to the US$ mills, bank centers, and marbled offices, far removed from the highly destructive Exchange Stabilization Fund and its war room management. Details on the gold vehicle will be shared when made available, and the green light given for full disclosure. Only rough sketches have been provided, with bits of detail. The entire process is in development. Risk level is high. The potential for retaliation by the USGovt with its full arsenal is acute.
The USDollar enjoys its position as global reserve currency still, but the winds are changing, to send the US ship of state to derelict waters. The global currency entails two important functions, usage in bank reserve systems and usage in trade settlement. As the Eastern nations embark on more trade settlement outside the USDollar sphere, the practical need for continued reliance upon the USDollar in banking systems will be obviated, removed, and eliminated. Entire national banking systems will not seek an alternative to the USDollar unless and until trade is no longer settled primarily in US$ terms. That supplanting process is accelerating. Nations will store fewer US$-based bonds in their banking centers, if trade does not require them in exclusive manner for settlement. They will store to some extent the new financial vehicles designed for trade usage, especially in short-term functions. The money changers and their tables are being turned upside down in a highly disruptive step by step process. The end result will be the USDollar losing its privileged global reserve currency status, the USEconomy being forced to bid up other currencies to import crude and finished products, and the United States as a nation no longer being capable of spending printed or credit card extended money like a drunken spoiled jobless rich kid who sports a bad narcotics habit.
◄$$$ UPCOMING SUMMITS WILL BE INTERESTING TO OBSERVE FOR CONTRAST. THE G-20 WILL BE AN IMPORTANT PLANNING STAGE EVENT, WHILE THE G-8 WILL BE A BACKWATER GRIPING AFFAIR. THE FORMER WILL DETERMINE THE GLOBAL NEW PATHS, WHILE THE FORMER WILL CONTEND WITH COLLAPSE OF THE FINANCIAL STRUCTURES. THE CONTROL HAS SEEN A TRANSITION TO THE G-20 VESSEL AND THE B.R.I.C. FRONT HELM. $$$
The upcoming G-20 Mexico Summit will be the seventh meeting of the G-20 heads of government. It will be held in Los Cabos at the Baja tip of California on June 18th and 19th. The convening of the G-8 summit is to be held at Camp David Maryland in the United States on May 18th and 19th. The G-8 Meeting will occur alongside the NATO summit. It is expected to generate an unusual amount of attention. NATO must contend with the Russian saber rattling over the Eastern Europe missile opposition. Putin has threatened to remove the emplaced missiles, which have little defensive purpose and have irritated Russia for a full decade. They stand in violation of past treaties. Perhaps it is finally time for the NATO nations to object to US behavior, including the airbase abuse in narcotics trafficking. President Vladimir Putin decided not to attend the G-8 Meeting, an insult to the industrialized nation leaders. He must realize its declining importance. He will probably send an emissary to Los Cabos.
The BRIC nations might use the June G-20 Summit to announce their alternatives for trade settlement, for new reserve currencies, and for SWIFT bank transactions. If so, it would be a blockbuster conference. Maybe the USGovt can release at the gathering a pack of virus strewn locusts, a specialty, or a swine flu as done at the Mexico City summit in 2009 attended by the Obama entourrage. Expect Treasury Secy Tim Geithner to use the May G-8 Summit to rally support against any G-20 initiatives presented in June. Expect Tiny Tim to find deaf ears. But the industrialized nations are hip deep in sovereign bond collapse with all the messy consequences that come from broken financial platforms, endless skeins of futile bailouts, and the recent populist uprising to bring an end to austerity poison pill applications. Do not expect the G-8 to be anything more than frustrated rhetoric to an empty audience by a bunch of men who used to control the great flagship at sea, but ran it aground much like the Italian cruise liner Costa Concordia. The USTreasury Bond ship is lying on its side, pumped frantically, but not so visible to the untrained eye. In its wake lies financial effluent of the most destructive variety (derivatives), combined with recklessly strewn fuel (USDollars & Euros & BPounds). The effluent kills capital, while the fuel could ignite to cause a powerful display of price inflation.
◄$$$ IRAN IS ACCEPTING RENMINBI FOR SOME OF THE CRUDE OIL IT SUPPLIES TO CHINA. THE MOVEMENT AWAY FROM US$-BASED TRADE SETTLEMENT IS GAINING MOMENTUM, THE PRIMARY ARENA BEING CRUDE OIL. WITH CHINA DOMINATING TRADE BOTH IN EXPORT AND IMPORT, EXPECT MORE CHINESE YUAN TO BE CENTRAL IN THE TRADE FLOW. EXPECT MORE BARTER DEALS TO BE CONSUMMATED AS THE USDOLLAR IS AVOIDED. GREAT RESENTMENT HAS COME AGAINST HARSH USGOVT ACTIONS. $$$
At the current moment, the Chinese Yuan is not fully convertible. Its ample supply is made available from several bilateral swap facilities that act much like formal barter. Industry executives in Beijing and Kuwait, as well as bankers based in Dubai confirm the usage of Chinese currency in oil trade settlement. The motive for its usage extends from the controversial USGovt sanctions aimed at Tehran. The nuclear program is a straw dog issue, whereas the non-US$ crude oil sales are at the heart of the conflict. Tehran is spending the currency on goods and services imported from China. Most of the crude oil in tankers that head from Iran to China is handled by the Unipec trading arm of Sinopec and through another trading company called Zhuhai Zhenrong. See the Financial Times article (CLICK HERE).
The Chinese Yuan accepted by Iran as a settlement currency for its oil trade with China poses a significant threat to the dominance of the USDollar as the global trade currency. China could be imitated. The movement is gaining momentum, to the dismay of the USGovt officials. The various barter deals also sidestep the USDollar in trade, as bilateral swap facilities push the usage of the Chinese Yuan in other channels. Some barter is underway between Iran and China, whose Zhuhai Zhenrong oil trading company provides services such as drilling to Iran in exchange of crude oil. Increasing US sanctions have put strain on Iran, reducing its oil revenues, and causing a fall in the local Rial currency that has resulted in a price inflation surge. The sanctions are more widely recognized as backfiring against USGovt ministries. Several countries have embarked on usage of their own currencies instead of the USDollar for oil trades. In a recently announced deal, India and Iran have agreed on India paying 40% of its oil imports in the form of Indian Rupee, the remainder set up as credits for Iran to purchase goods and services from India. Also China has joined India in a similar barter deal with Iran. The pattern has begun. Devices in bilateral best interest are being pursued, in avoidance of the USDollar with all the heavy handed strictures, fraudridden mortgage bonds, risk-filled bubbly USTBonds, and oversued financial weapons deployed. Global resentment adds to the motive to seek non-US$ solutions in trade. See the Commodity Online article (CLICK HERE).
◄$$$ LOOK FOR A REVITALIZED EURO CURRENCY MADE CLEAR IN A TRIM SOLID CURRENCY AFTER REMOVAL OF THE TOXIC SOUTHERN LIMBS. THE POST-PIIGS EURO WILL HAVE A GERMAN CORE. THE OPPORTUNITY WILL SOON ARISE FOR THE ARRIVAL OF A SET OF GOLD-BACKED NEW CURRENCIES. $$$
Four main potential currencies (Euro Mark, Russian Ruble, Chinese Yuan, Gulf Dinar) would force the United States, Great Britain, and sick parts of Southern Europe to bid up the four new strong currencies. The USDollar is soon not to be the central focal point of global trade. Immediate consequences are coming for those nations not participating in new global trade core, where critical mass might be suddenly achieved to upset the global financial structure. Their banking systems will have much less inducement or need to store US$-based bonds. Deadly Weimar consequences of USTBonds being fully dependent upon the USFed printing press have already been felt for at least a full year. Main street price inflation is coming to the USEconomy and Western Europe, global trade areas outside the newly planned systems soon to be launched out of crisis in expedience. The United States has profound import dependence, with over 50% of debt held by foreign creditors. Look for the US & UK & Western Europe to become the heart of the new industrialized Third World, as they must acquire the new currencies. The most significant consequence will be that the USDollar will decline badly enough to cause severe problems in the USEconomy. The clowns who shout about USDollar dominance are going to be silenced. Gold will be the center of the new systems that displace the US$ structure that are collapsing. Its price will be multiples higher.
## DEADLY CENTRAL BANK POLICY
◄$$$ THE MYTH OF ALAN GREENSPAN IS BEING EXPOSED. HIS TRUE SIDE AS A RECKLESS INFLATION ENGINEER HAS BEEN MADE PLAIN. HE PRESIDED OVER THE GREATEST ASSET BUBBLE EXPERIMENT IN US-HISTORY WITH A GUARANTEED SYSTEMIC FAILURE AND DEBT DEFAULT. $$$
The ex-chairman should have his knighthood stripped. The myopic garbled Sir Alan Greenspan has been followed by the Weimar champion and revisionist history expert on the great depression. The Bernanke handiwork is proving that ample liquidity indeed solves nothing, contrary to his wondrous academic treatises of pure dross, earning his acclaim. The Bernanke Fed attempts to dampen price inflation by reducing final demand, as it slowly kills the USEconomy. Sir Alan Greenspan is a name of mockery used by the Jackass. He was nothing but a double agent working for Swiss castle dwellers who earned two paychecks. His hidden mission was to give Americans what they wanted so that they would destroy themselves, weaken the USDollar, and bring out global financial chaos. The masters with ascots and snifters would usher in central fascism during the crisis storms. His tools were easy money and accepted false economic statistics. His language was undeciperable, and therefore respected by fools and professionals alike. See the Cafe Americain article (CLICK HERE).
The Bernanke Fed has always arrived late to the scene, after incorrectly urging calm and assuring of containment of burgeoning crisis, later to erupt into a horrendous mess. Expect a collapse from the crippled situation that has been in progress without potential remedy for four full years. It seems the USFed prefers to come late to the rescue, probably so that the big banks can sell their assets at more favorable prices. After all, the US Federal Reserve works on behalf of the elite class of bankers and masters of the universe. The USFed continues to work an agenda that smacks of disaster, as they attempt to dampen final demand. Their goal is price containment, but on the demand side. On the other side of the equation, their relentless monetary expansion and bond purchases result in ugly monetary debasement seen directly in higher commodity and energy prices. So the USFed is using a strategy to kill the USEconomy in order to contain price inflation. This is the worst possible example of central bank leadership in modern history, probably all of history. Yet Bernanke is admired within the financial community of paper merchants. Policy causes profound economic damage to curtail end demand without halting their pressure for higher cost structure. As they debase money, costs rise and capital is destroyed as it is taken out of production, often liquidated. When the monetarist firemen arrive late to apply fire hose liquidity, they render damage in every step of the way, lastly with water damage. The global economy on the Western side is being permanently wrecked, sure to affect the more vibrant Eastern side. The myth of brilliance possessed by Greenspan is being seen as a last hurrah, a blowoff top. Next comes systemic failure. He will be seen as the goat.
◄$$$ THE L.T.R.O. SOLUTION DESIGNED BY DRAGHI IS FAILING IN FULL VIEW. THE NEW DEVICE IS DISTRUSTED. IT HAS RESULTED IN SUDDEN LOSSES TO BIG EUROPEAN BANKS THAT FIND THEMSELVES STRUGGLING WITH NASTY ILLIQUIDITY PROBLEMS. THE DRAGHI TOOL DID NOT PATCH UP THE BIG BANKS, BUT RATHER POKED ENORMOUS ADDITIONAL HOLES IN THEM. THE EURO BANKS ARE RUNNING OUT OF VIABLE ASSETS, GRAND INSOLVENT HOLLOW PILLARS. THE USFED AND EURO-CB ARE LOADED WITH TOXIC SWILL JUNK PAPER. $$$
The big European banks are being branded with a stigma for participating in the reckless LTRO funding programs. What a perverse development. They are a disaster and signify a major blunder by Draghi right out of the starting gate as head of the Euro Central Bank. The Long-Term Refinance Operation funds went directly to purchase Spanish and Italian Govt Bonds, and are fast on negative ground. They have put the banks that tapped the funds into a vulnerable position. The bond market has chosen to stigmatize those banks involved. Since mid-January, when the failure of the LTRO became more evident, the banks with fund usage have been given a higher bond yield assignment as punishment. The market place has no mercy. Application of Southern Comfort and Jack Daniels harmed the alcoholic patient further, hardly a surprise. Unlike the QE bond purchases in the United States, which have no meter for failure, since the USTreasury market is controlled with a semi-tight fist, the Euro bank bonds respond to real market forces. The Euro banks are beneficiaries to the Dollar Swap Facility laid out for their usage, dispensing nearly free USDollars to handle their troubled portfolios. It has backfired on Draghi.
The Zero Hedge staff is solid and expert, a crack team on top of the situation, first to point out numerous nasty effects. They noticed the stigma for banks that took LTRO funds, by comparing corporate bond yields for the group versus those not taking the LTRO funds. One could argue that no control group is in place, that the LTRO banks were weaker to begin with, pushed by the urgent need to participate in patching up the problem. But they abused the funds by purchasing sovereign bonds after they had been discounted by heavy bond monetization at the hands of the Euro Central Bank. As bond yields have risen from the hollow solution, the LTRO banks are on the hook, in negative ground, and very vulnerable. Nothing was fixed. The Zero Hedge team has embarrassed Draghi, a hack from Goldman Sachs who brings no solutions, only more disguised debt instruments that solve nothing. Like a better brand of Chivas Regal whisky for the alcoholic, it will fix nothing.
The so-called Stigma bond spread between LTRO and non-LTRO banks jumped notably in recent weeks, the spread higher than anytime in the last two weeks, at over 160 basis points, and its highest in almost six months. A new major challenge has arisen for the EuroCB to manage. The banks that need additional LTRO funding have no more performing collateral to pledge. Worse, other banks that would like liquidity will not accept ECB funds, since they better understand the encumbrance and consequent stigma attached, like vassal servitude. The ECB is left without viable tools to offer. Upcoming and soon is more direct bond monetization, the scourge of central bankdom. It is pure monetary hyper inflation of the most egregious variety. It is the last resort of the failed central bank franchise system defenders. The vicious circles are ramping up in Europe once more. The LTRO benefit is nil, turned into a stench with a stigma. More money poorly spent, recklessly tossed into the mix. The central banks are failing and flailing in full view.
Tyler Durden repeats his dire assessment from two months ago, "When one understands that the heart of Europe's problem is the rapid vaporization of all money good assets, everything falls into place, from the ECB's response, to Europe's propensity for infinite re-hypothecation, to the rapidly deteriorating financial system." The European banking system is soon to run dry of viable assets. No collateral will be left available. The continent will then resort to pure bond monetization, the ultimate scourge. The USFed will come to their rescue again with another round of Dollar Swap Facility easy money. It is just hyper monetary inflation of a different stripe, having passed under the Atlantic. The USFed and EuroCB have one trait in common, both have toxic balance sheets. Also, neither central bank will dare initiate margin calls on the dross assets held as collateral, for fear of causing a panic if not a meltdown. See the Zero Hedge article (CLICK HERE). The USFed and EuroCB are killing all assets in Europe.
◄$$$ THE L.I.B.O.R. RATE BY BANK REVEALS THE STRESS ON INDIVIDUAL BANKS, WHICH HAVE NEED FOR USDOLLARS. THE HIGHER THE RATE, THE MOST DESPERATE THE BANK AND THE CLOSER TO FAILURE. NOTICE THE FRENCH BANKS LEAD THE PACK IN HIGH SWAP LINE RATES. THE FRENCH BANKS ARE IN ALL LIKELIHOOD LOSING THEIR GOLD RESERVES DURING PAINFUL MARGIN CALLS, TAKEN BY FORCE. $$$
Since last summer, the big European banks have shown within the currency swap market their rising stress levels. The alarms are ringing as market mavens and bank analysts observe the deteriorating conditions. They require USDollars to satisfy debts, taken from the easy money lines at the USFed. That funding has backfired also. Three things are occurring in European liquidity markets that should worry the big banks and their investors. 1) The 3-month LIBOR is waking up again after issuing red light warnings at the turn of the new year. 2) The flagship Deutsche Bank has attracted unwanted attention in recent upticks for 3-month LIBOR. They join UBS as the only other bank to raise its willing offer rate within the LIBOR family. They need the short-term liquidity. 3) The 3-month EUR-USD basis swaps that enable USDollar funding have exploded with their biggest deterioration in five months. Big banks are pushing up the premium they are willing to pay to receive USD over EUR in an open display of desperation.
Newly appointed Euro Central Bank head Mario Draghi seems slow afoot in recognizing the nasty outcome to his lame inept solution. He optimistically expects to see the beneficial effects of the Long-Term Refinance Operations, as it filters through to the real economy. Once more, he is incorrect as banks are now desperately seeking liquidity (USD-based in this case) with short-term swaps. He fails to comprehend that new bond paper to replace old toxic bond paper still have the same sick roots in vacuous collateral. Conditions in LIBOR have grown worse. The new wrinkle is how the 3-month EUR-USD basis swaps have just snapped. The big European banks are reverting back into funding crisis mode. The lesson learned is obvious, but not to the central bankers who have exhausted solutions with empty toolbags. No LTRO funds can save the day, especially in Spain. No collateral remains to pledge, as the rot permeates the banking system. Expect the highly undesirable solution to be ordered, a direct ECB monetization, in an early stage to bank recapitalization. See the Zero Hedge article (CLICK HERE).
Based on LIBOR rates, one can deduce that Societe Generale, BNP Paribus, and Credit Agricole have the worst acute problems. They are known to be in possession of very large Greek sovereign debt exposures. The natural consequence, in the midst of gold pressures by the Eastern Coalition, would be for the big French banks to suffer massive loss of their gold reserves, liquidated to support their sovereign debt margin calls. This hypothesis awaits confirmation. Be sure to know that securing USDollars via the swap lines lifts the USDollar, depresses the Euro, and harms the gold price. It is backdoor US$ demand to stave off ruin. The paradoxical mix occurred also in 2009, but quickly turned positive for gold. It will again, but with more volatility.
◄$$$ THE USFED APPROVED HOLDING COMPANY APPLICATIONS FOR THREE CHINESE BANKS. SOMETHING IS BREWING, POSSIBLY A MAJOR STAKE BOUGHT IN TEETERING BROKEN BIG US-BANKS, BY THE CHINESE. WITNESS THE POSSIBLE BEGINNING OF CHINESE EXPANSION IN THE UNITED STATES, AS VIABLE STRONG LENDERS. THE USFED HAS APPROVED THE PATH FOR THE FIRST CHINESE TAKEOVER OF A BANK CHAIN IN THE UNITED STATES. JUST WHEN DEBATE WAS STARTING UP, THE CHINESE ANNOUNCED A TAKEOVER OF A HONG-KONG BASED BANK WITH BRANCHES IN CALIFORNIA AND NEW YORK. THE USGOVT HAS MADE NICE WITH THE CHINESE, CUTTING BACK ON HOSTILITIES. $$$
Be sure that the Chinese have threatened the American bankers and their tools in political office. Something very big is happening as the USFed has approved bank holding applications for three major Chinese Banks. Some speculate that some of these banks could be primed to acquire some US big banks. Perhaps in a certain climax of events, under the right circumstances, using measured political leverage with their vast USTBond holdings, China might pull off a purchased stake in the big US insolvent banks. In the meantime, the opening salvo is to grab a bank with Hong Kong roots but branches on the two US coasts. Check out the formal announcement for Industrial & Commercial Bank of China, the Agricultural Bank of China, and the Bank of China (CLICK HERE, HERE, HERE). These are branch licenses, not primary dealer licenses.
Colleague Craig McC in California closely monitors the story. He wrote, "With a bank holding company the Chinese can now easily recycle USTBonds into shares in US or foreign companies traded on any US exchange. They could also invest heavily in gold and silver funds such as Sprott, tech companies, and others. They could even buy non-traded assets such as agricultural land. The Chinese will no longer be blocked from buying companies like Unocal like they were 3-5 years ago." The times have changed, since China has become the largest USTBond creditor. It can call the shots. See the Keystone Oil pipeline, where it appears that Athabasca oil from Canadian oil sands is to be directed to China, and not the American heartland. In fact, up to 35% to 40% of Canadian mineral and resource output that leaves the Vancouver port is directed to China, which owns the port.
ICBC is China's largest bank. History has been made, when the USGovt approved a takeover of a US bank by a Chinese state controlled company. Immediately following high-level US-China economic talks in Beijing, the US Federal Reserve approved an application from Industrial & Commercial Bank of China to buy a majority stake in the US subsidiary of Bank of East Asia. The giant ICBC will pay $140 million to buy an 80% interest in Bank of East Asia USA. The transaction will make ICBC the first Chinese bank to acquire retail bank branches in the United States. For some time, ICBC has been the most aggressive of the big four Chinese banks to expand overseas. According to the USFed, the Chinese giant bank has total assets of about $2.5 trillion. The path is clear to buy up to 80% of the US unit of the Hong Kong-based Bank of East Asia, which operates 13 branches in New York and California. As part of the deal, ICBC, the China Investment Corporation (CIC), and Central Huijin Investment will each be recognized as bank holding companies, subject to US commercial bank regulations.
Supposedly, a reciprocal agreement has been forged, whereby reforms have enabled an open door to the lucrative Chinese financial sector for US firms. After the conclusion of meetings on May 4th, the USDept Treasury stated that China had made encouraging progress on reforms, including steps toward a more open and market oriented financial system. (Try not to laugh or puke.) Without any doubt in the Jackass mind, the Chinese threatened to dump USTreasury Bonds, and complied in minor ways toward apparent reform, the pressure applied privately. The USGovt is extraordinarily vulnerable and in no position to bargain, fast losing its sovereignty via external debt. Although the footprint by ICBC is small within the US financial sector, the door is opened for further maneuvers and acquisitions, including small minority stakes in the largest Wall Street banks, plus the important satellite banks like Wells Fargo and Bank of America. The volume is indeed small. The Bank of East Asia comprises under 1% of New York City bank deposits. By the way, CIC already owns a non-controlling stake in Morgan Stanley. In other USFed board decisions, Bank of China won approval to acquire a branch under its name in Chicago. Bank of China operates two insured federal branches in New York City and an uninsured branch in Los Angeles. Agricultural Bank of China is almost ready to establish a branch in New York City, where it operates a trade office. See the Yahoo Finance article (CLICK HERE).
◄$$$ THE CHINESE WILL REPLENISH THE US-BANK SYSTEM WITH INFUSION OF A SIZEABLE PORTION OF THEIR USTREASURY BOND HOLDINGS. THE FRACTIONAL SCHEME WILL CREATE NEW MONEY WITHOUT THE USFED HAND DIRECTLY. THE NEW FEDERAL RESERVE NOTE EXPANSION COULD FINANCE A GRAND BANK ACQUISITION BINGE BY THE CHINESE, OR OTHER ASSET GRABS. $$$
A fellow who writes under the name of Throxx, so told, is a sharp analyst on banking matters. The following points are his comments, passed along by a colleague in an attempt to shed light on the Chinese incursion on US banking soil. He sees QE as occurring in a new twist, following Operation Twist and its deception. He wrote, "In my humble opinion, QE3 is presently being implemented via the chartering of new bank holding companies in the United States, which will utilize Chinese held USTreasurys as their base capital. The Chinese-held USTreasurys will be utilized as base capital upon which to create $trillions of digital Federal Reserve Notes via fractional reserve. While these Treasurys were held outside of the US banking system, FRN could not be created via fractional reserve. But now these Treasurys, they will be used as a basis to generate digital FRN out of thin air. If China holds $1.2 trillion of USTreasurys, then $1.2 trillion in USTreasurys equals the possible creation of $10.8 trillion new digital FRN via fractional reserve banking. Sounds kind of like a money printing scheme, doesn't it? No 'Dollar of Capital' rule as our host would say. Sounds a tad inflationary, doesn't it? This is exactly how the US Banks counterfeited FRN and ramped up inflation during the housing bubble. It is going to be done again with the help of the Chinese. The Chinese are not going to dump their Treasurys. The Chinese are going to print $trillions of digital FRN and go on an unprecedented USGov and USFed sponsored leveraged domestic buying binge!" See the Market Ticker weblog (CLICK HERE and HERE).
The Jackass rejoinder is to expect only a few $100 billion perhaps at most to be infused. Even that would facilitate $1 trillion in asset purchases like banks, idle factories (think Chinese components), idle shopping malls (think Chinese brands), idle car dealerships (think Chinese cars), commercial buildings (think Chinese upper class managers), even lush hotels (think Chinese tourists). It could be colonialism. It could be foreign investment to assuage trade friction conflicts. The next stage of the financial crisis will take a few new twists. The Western Govts are looking for other nations to bail them out, because they cannot bail themselves out, not without causing hyper-inflation on a Zimbabwe scale. The West is suffering from widespread systemic insolvency, in desperate need of fresh capital. The whole charade ends when key players finally call it out, either voluntarily or forcibly, via margin calls and ambushes.
◄$$$ AMID SIGNS OF ECONOMIC WEAKNESSES, CHINA PLANS TO LET LOOSE A MOUNTAIN OF CASH FOR LENDING. UNLIKE THE UNITED STATES AND OTHER WESTERN NATIONS, THE PEOPLES BANK OF CHINA IS DIRECTED BY POLITICIANS IN A CONTROLLED FINANCIAL SYSTEM. THE CHINESE WILL JOIN THE GLOBAL QUANTITATIVE EASING MOVEMENT BY STORM. $$$
The Chinese Economy is slowing down, or better put, its growth rate has tempered from torrid to brisk. The Peoples Bank of China, controlled by the central state planning group, announced more accommodation of monetary policy in response to a raft of weaker economic indicators. They would reduce the Chinese bank reserve ratio from 20.5% to 20.0% for large banks in an effort to free more bank capital. Small and medium sized banks will be required to hold 16.5% of deposits as reserves, set at 17.0% formerly. Growth in imports had come to a virtual halt in April compared with a year earlier, an unexpected development. Their economy depends heavily on imported commodities as well as imported computer chips, sophisticated factory tools, and other high-end products used in factories. Exports grew half as fast as expected in April. Also, industrial production, fixed asset investment, and retail sales all increased more slowly than expected in April. Separate figures from showed weak growth in bank lending as well, to complete the moderation story. The reduction in the bank reserve ratio is the third in the past six months.
Consumer prices across the Middle Kingdom appear to be under control, rising 3.4% in April from a year earlier, slightly above target. As with Western bank lending, the trend has been for businesses to foresee fewer profitable investments and expansion opportunities. The harsh decline in land and apartment prices has resulted in steep collateral value reductions from which to borrow. The government initiative was to bring down property prices for the benefit of the masses. Inefficiency extends from goofy communist policy, as the banking system continues to allocate credit mainly to state owned enterprises and local governments out of obligation and favoritism, instead of directing credit to the more efficient private enterprises. The USGovt is parallel in favored ineffective policy, as it directs money to the criminal enterprises on Wall Street already shown to be guilty of big league fraud. Without debate, the Chinese Economy is slowing down, with the base of growth narrowing. The PBOC response will be to open the gates and send mountains of money into the system, whether efficiently directed or not. In doing so, they will join the Western in unbridled QE to Infinity. The process is picking up speed. In the second week of May, the PBOC pumped $41 billion into the Chinese banking system. They just announced a hefty 50 basis point rate cut in the discount rate, and a matching 50 bpt cut in the bank reserves requirement.
◄$$$ THE BANK OF JAPAN HAS PLEDGED TO PRINT MONEY IN ANY PENDING EMERGENCY. THEY POINT TO POTENTIAL EMERGENCIES ARISING. THE PLEDGE WAS GENERAL BUT EMPHASIZED A CONTINUED WILLINGNESS TO DEBASE MONEY. POLITICAL RANKING MEMBERS WISH FOR BETTER RETURNS ON THE $TRILLION SOVEREIGN ACCOUNT, AND MIGHT BE THINKING ABOUT GOLD PURCHASES. IT IS A RISING ASSET. $$$
The Bank of Japan pledged to deploy its foreign currency assets, valued at $63 billion, toward any global emergency response to turmoil in financial markets. The bulk of Japan's $1.2 trillion in FOREX reserves, the world's second largest after China's, will not be altered in usage. BOJ data as of September showed more than 90% of its holdings were in bonds. The official statement said, "Time may be necessary before international organizations and other relevant institutions are able to take necessary measures. [The bank] would be prepared to provide foreign currency until international support is provided. There have been situations where the market liquidity of assets once considered as relatively safe has deteriorated, accompanied by, in some cases, increased credit risk. [There has been] a growing tendency for a financial shock in one corner of the world to spill over into other markets, and the speed of such spillovers has accelerated." In other words, they wish to diversify the reserves and find safer and more productive investments than overpriced USTBonds and crumbling EuroBonds and wasteful UKGilts. THINK GOLD. The bank knows better than to mention interest in gold, for fear of US retaliation by syndicate overt and covert actions. Legislators in Tokyo's upper house is angry about poor returns on their national savings account, wasting away on Euro bond toilet paper losses, and earning nothing on toxic USTreasury Bonds supported by bond monetization, both admitted and hidden. The primary emphasis for the BOJ reassurance was to provide emergency liquidity to Japanese financial institutions if needed. For the moment, they do not face any problems with their foreign currency funding, claimed the central bank. See the Bloomberg article (CLICK HERE).
The Bank of Japan stepped back into the stock market in early May, making its largest single day purchase of exchange traded funds ever. The Japanese central bank bought about $500 million worth of stock in ETFs as part of its ongoing asset-purchase program, besting a previous record by 40% set in April. The trend is active and upward. The BOJ also bought a small amount of REIT stocks, but with little or no impact on the real estate market.
◄$$$ AUSTRALIA SURPRISED WITH A 50 BPT RATE CUT TO 3.75% IN A BOLD MANEUVER THAT CHOOSES GROWTH WITH INFLATION OVER AUSTERITY AND DECLINE. THEY CAN ALWAYS LIE ON THE SUBSEQUENT PRICE INFLATION WHEN CLAIMING MORE ROBUST GROWTH LATER. THE AUSSIES HAVE BEEN THE MOST RESPONSIBLE KID ON THE CENTRAL BANK BLOCK BY AVOIDING THE CAPITAL DESTRUCTION FROM A ZERO PERCENT POLICY. $$$
The Reserve Bank of Australia cut its benchmark interest rate by a steep 50 basis points, from 4.25% to 3.75% in a mild shock policy move. An imbalance had developed with retail banks, lifting their rates to counter higher funding costs. RBA Governor Glenn Stevens gave indication that the bold rate cut was in response to skittish global conditions where Europe could continue to produce adverse shocks. Interpret that to mean global systemic breakdown, no sugar coating like Stevens. The rate cut was seen as an admission that the central bank had to do more to stimulate growth. The way was paved by a recent tame price inflation reading at 0.1%, well below the expected 0.6% widely bandied.
The Aussie Dollar has declined in the following two weeks, having come from 103.98 when the news was cut to 100 parity and even lower, down to 98. The nearly 6% exchange rate devaluation is rather hefty and could cause a different kind of shock wave Down Under. The tradeoff is to stimulate exports with cheaper prices, but with a dose of price inflation on commodities and imports. The benefit to exporters might be a nothing wash, no win. The cost to the domestic economy might be higher costs, a lose. The CPI can be doctored later, with US stat rate help on methods, where much experience lies. However, the Aussie Economy is a dynamo on commodity output. If commodity prices remain tame, the plan will bear results. The biggest factor to price inflation has been and will continue to be federal deficits. Australia fell victim with the extreme gullibility (if not stupidity) to build up defense spending at the urge of the Bush II Admin. It is still unclear exactly who the defensive outlays were against. My guess is for defense contractor profit.
Slowdown is broad within Australia. The 4Q2011 GDP growth was reported at 0.4%, down from 0.8% in Q3. Regard actual growth to be less, since they use similar methods in calling some portion of price inflation as growth. Meanwhile, quarterly house price data showed that detached home prices fell 1.1% on quarterly sequence ending March, a big decline. While some corners criticize the RBA central bank for high official interest rates, near the highest among industrialized nations, the Aussies are responsible and have destroyed capital to a much lesser degree than either Europe or the United States. An artificially low cost of capital has a negative effect of destroying capital by raising the entire cost structure unduly. The Aussies are less in the line of fire on capital destruction and economic deterioration by decree. The RBA appears on the edge of desperate. The last time the central bank cut rates by more than 25 bpts was in February 2009 at the height of the global financial crisis, when it slashed rates by a full percentage point. Regard the hefty rate cut as confirmation of renewed financial crisis conflagration. See the Market Watch article (CLICK HERE) which contains internal links for additional economic data.
## ENDLESS CENTRAL BANK INFLATION
◄$$$ THE USFED IS STUCK AT 0% FOREVER. THE REASONS ARE TOO MANY TO LIST. USGOVT BORROWING COSTS CANNOT RISE TO TRIPLE THE CURRENT LEVELS. THE INTEREST RATE SWAP CONTRACTS WOULD BLOW UP, CAUSING $50 TRILLION IN JPMORGAN LOSSES. LASTLY (FOR NOW), THE BIG BANK CARRY TRADE WOULD ROLL BACKWARDS ON THE ENTIRE US-BANKING SYSTEM, CAUSING WORSE INSOLVENCY. THE USFED WOULD BE OBLIGATED TO BAIL THEM ALL OUT. THE POLICY IS Z.I.R.P. FOREVER. CLEARLY. $$$
Charles Biderman and Jim Bianco are excellent credit analysts with insights into the USFed balance sheet. The USGovt requires at least $100 billion per month, hardly able to tap any vast wellspring of US savings. So the USFed resorts to Operation Twist, and to creation of demand at the short end by promising the big US banks of 0% for another two to three years. The promise keeps the banks investing in USTBonds, and not lending. A change in the official short USBill yield would kill the carry trade that captures the yield differential between the 10-year and the very short maturities. As seen with the JPMorgan losses (due secretly to the Interest Rate Swap accident), higher official rates driven by the Fed Funds rate would cause a rapid eradication of all things banking in the United States. The interest rate derivative market would implode, a nuclear event resulting in losses between $30 and $100 trillion. Ironically the USFed is a prisoner of its own Zero Interest Policy and Quantitative Easing both. The QE assures rising cost structure and USEconomic sluggishness better known as permanent recession. The ZIRP assures mispricing of assets that keeps high the pressure on commodity investments, while offering savers next to nothing in a grand wet blanket atop the entire USEconomy. The USFed cannot afford to see economic growth, and has stifled it. The USFed has successfully overcome the chronic 10% price inflation via heavy usage of Interest Rate Swap derivatives to create artificial demand. They overcome the chronic $1.5 trillion deficits also. But in doing so, they put themselves in a monetary straitjacket, never able to leave the 0% rate. They trumpet a march to safe haven that does not exist and does not include any members in the march. Welcome to the Land of Orwell.
Biderman and Bianco offer a fine simple primer of the USFed's implicit risk-free carry trade. They explain how Operation Twist and its implicit funding of this carry trade is nothing more than the US version of the European LTRO. Implied is the USFed's balance sheet being considerably larger than it appears. The USTreasury Bond ponzi scheme is slowly coming into view, the main engine to the hyper monetary inflation. It is unraveling with JPMorgan losses, to grow over time and become obscene. See the Zero Hedge article and video (CLICK HERE).
◄$$$ THE GLOBAL INVESTMENT COMMUNITY STILL ADMIRES BERNANKE, AS DEBASEMENT OF MONEY IS A POPULAR THEME AND WIDELY DESIRED PATH. THEY EXPECT (MORE LIKE HOPE & PRAY) FOR MUCH MORE BOND MONETIZATION. EASY MONEY KEEPS PAPER ASSETS BUOYED IN PRICE, EVEN WHILE THE ENTIRE PLATFORM SINKS. HIS ADMIRERS HAVE A BLIND EYE ON CAPITAL DESTRUCTION, IGNORING THE RISING COSTS AS NORMAL, AND CALLING THE RISING ASSETS BENEFICIAL. AMERICA HAS LOST ITS SENSE OF INDUSTRY. $$$
The Bloomberg poll of investment managers is stark and telling. The worldwide community of fund managers still admires USFed Chairman Bernanke, despite his endless errant forecasts. They love him because he throws money into the crowd, debasing it in the process like a rugged leap into the mosh pit. The mindless wild-eyed behavior is exemplary as it demonstrates the public acceptance of monetary debasement and ignores the consequence of higher cost structure that brings systemic ruin. They care about inflating shares and other prices without concern for the damage inflicted. What happened to home prices will happen to stock values, as soon as the intervention if relaxed. The biggest high frequency trader is the USGovt with its Working Group for Financial Markets, active most days at 10am and 3pm. They investment community implicitly harbors disdain and neglect for Main Street, as long as the finance sector rolls onward and upward. The poll of over 1200 people revealed a 75% favorable rating for Bernanke, a 66% rating for Mario Draghi (head of Euro Central Bank), and a 51% rating for Treasury Secy Geithner. The polled parties expect by 39% for a continuation of bond purchases, and by 22% a formal QE3 program. Bernanke and Draghi and Geithner are the marquee clowns of monetary ruin. The poll is not a random sample obviously, since entirely within the finance sector, which will cheer the monetary debasement all the way to the end of the road when the USGovt debt default occurs.
◄$$$ AN INFLATION SURGE COMING. IF INTEREST RATES BEGIN TO RISE, LOAN DEMAND MIGHT NOT BE QUELLED. THE HYPOTHESIS SEEMS TRUE BUT ONLY IF RATES CAN RISE. INSTEAD, CENTRAL BANKS WILL FLOOD THE SYSTEM WITH MORE EASY MONEY SINCE THE GLOBAL ECONOMY IS SLOWING DOWN. CENTRAL BANKERS ARE TURNING SCARED. THEIR EASY MONEY SOLUTIONS, THEIR EXPANSION OF DEBT SECURITIES WITH DIFFERENT INK, THEIR GRANTS TO COVER TOXIC BONDS HELD BY BANKS, IT ALL IS WORKING TO WEAKEN THE GLOBAL ECONOMY. THEY ARE EXHAUSTED FOR WORKING SOLUTIONS. THE SOLUTIONS WILL COME FROM THE EAST, AS THE USDOLLAR IS REJECTED AND THE USTBOND IS ISOLATED AS A USFED BALL OF YARN. $$$
Larry Edelson of Weiss Research is a sharp analyst with good insight and a bold style. He wrote an essay worthy of mention. "Believe it or not, the central banks do not understand interest rates. They think that they can raise rates at the appropriate time and that higher rates will quell loan demand, thereby pulling liquidity out of the system. That might be true in a more normal economy, but in today's economy, it is totally backward. Reason: Because rates are so low to begin with, as rates rise, it is likely to have the opposite impact. Investors and consumers will begin to realize that rates are going up, and they are then going to want to buy more, borrow more, and invest more. In other words, as the central banks raise rates somewhere down the road, they are going to see precisely the opposite of what they intended. A surge in credit and loan demand. That means that the $4 trillion the central banks printed will run like crazy through the global economy, pushing up overall price levels. For another reason, forget reeling in the $4 trillion the central banks have already printed. They are about to print a heck of a lot more! There is no question that is coming. Just look at what is happening. Britain is now officially back in a recession. France's economy is slumping. Spain's economy is toast, in a depression. Portugal's economy is collapsing again. Even Germany's economy is starting to slow. And in each one of the above countries, the debt crisis is getting worse.
So I have no doubt the European Central Bank will soon print more money. The same applies to Japan, who just last week started another round of Quantitative Easing, printing another $68 billion. Then take the United States, where we will have miserable unemployment, where it appears real estate is softening again, and where we have elections in just six months. The status quo in Washington will do just about anything to keep their jobs, including putting pressure on the Fed to print more money. Bottom Line: There is no question in my mind that another inflationary surge is right around the corner."
The next flood of money will raise the cost structure and accomplish next to nothing in business formation, labor hires, and new income. The central bankers are no longer pushing on a string. They are shoving money into a black hole, which produces a cantilever effect in rising cost structure like a rising lake water level. They have no concept of economics, capitalism, or legitimate income in the Western side of the world. Pay less heed to the point made by Edelson about a rush to borrow money in extended credit. The Interest Rate Swap tool will keep interest rates down. The USGovt creditors might be frustrated by poor low bond yield for income on reserves, but they have lost the market. The main buyer for the new and rolled over USTBonds is the USFed through debt monetization. Even migration from stocks to bonds is almost played out exhausted. The real message from Edelson at Weiss Research is that the next push on QE to Infinity is being ordered, soon to be delivered, but to the finance sector and not to Main Street.
Some of the most dangerous and erroneous economic thought comes from the popular clown Paul Krugman. Do not be fooled by his Nobel Economics Prize. Krugman is a monument to economic stupidity. It was awarded in order to placate the finance sector mavens and to endorse heretic monetary policy espoused by the Wall Street bond thugs. Krugman argues for more monetary easing in the midst of the unending crisis, without realizing that the artificially low interest rate is the primary cause for the lack of recovery, along with refusal to liquidate large insolvent banks loaded down by toxic paper. Krugman is a carnival barker who serves as a Wall Street promenade of shamans. He wishes to produce higher inflation in order to liquidate the old debt. He wishes to endure higher deficit spending in order to produce jobs, without realizing the opposite effect occurs. He wishes to conduct more bond purchase programs without realizing the harmful effect to the USDollar, and the knee-jerk reaction to food and energy prices. The induced inflation desired by the hack prize winning Krugman causes higher costs, more job cuts, lower income, deeper recession, and higher federal deficits, in a massive powerful vicious circle described in detail by the Hat Trick Letter for over four years. The result would be greater debts, not lower. If he cannot notice the ass-backward impact from three full years of 0% damper effects, he never will.
Krugman has learned nothing from the extended 0% rate and the chronic $1.5 federal deficits that refuse to go down from extended stimulus already. He has not grasped the gravity of the situation, wherein lower rates no longer stimulate, but rather eradicate the profit margin for business models, and eliminate jobs. Krugman is a lousy economist who cannot argue successfully any of his Keynesian wrong-footed theories. None have panned out in the crisis that will not end until the USGovt debt default occurs, the end of the road and the stamp of finality for the United States to enter the Third World. See the Dollar Collapse article (CLICK HERE). As footnote, the Nobel Prize has lost all value in my book since Obama won the Peace Prize, after not doing a single deed in the effort toward peace as a US Senator. The prize grant was a giant F.U. to the world. No offense to the office of the Presidency, only to the powerful groups that control it. In my estimation either Oprah Winfrey or Jay Leno was more deserving. The Western economists and bankers, a veritable tag team of destroyers, will be removed from the helm by the East. The new solutions will be radical, to remove the USDollar as global legal tender, to remove the USTBond as global reserve choice.
◄$$$ DAVID STOCKMAN OFFERS SOME WISDOM ON INFLATION AND BREAKDOWN. HE IS WISER THAN GIVEN CREDIT. HE EXPECTS A SYSTEMIC BREAKDOWN LONG BEFORE PRICE INFLATION CAN SURGE BY ANY DEMENTED DESIGN. $$$
David Stockman was the Budget Director in the Reagan Admin. Despite some gaffs during that tenure, he has emerged as a voice of reason and harsh critic of current monetary and fiscal policy. He wrote, "No, I do not think we will have hyper-inflation. I think the financial system will break down before it can even get started. Then the economy will go into paralysis until we find the courage, focus, and resolution to do something about it. Instead of hyper-inflation or deflation there will be a major financial dislocation, which means painful re-pricing of financial assets. How painful will the re-pricing be? I think the public already knows that it will be really terrible. A poll I saw the other day indicated that 25% of people on the verge of retirement think they are in such bad financial shape, that they will have to work until age 80. Now, the average life expectancy is 78. People's financial circumstances are so bad that they think they will be working two years after they are dead!" Stockman expects a systemic breakdown from the attempts to generate inflation, from excessive bond monetization, and the unintended consequence of wrecking the economy. He did not even address the widespread bond fraud and financial firm thefts, nor the array of investor lawsuits. He did not address the absent investment capital machinery, since bond fraud and carry trade have replaced IPO and Bond Issuance. He does not address the global rejection of the USDollar in trade. Unlike in the past, the USEconomy is not a closed system anymore. The jobs are going to the East where labor is cheaper, regulatory oversight is almost non-existent, capital is cheaper, and skilled workers are plentiful. The end result of forcing inflation to reduce the debts is to kill capital, force worker cutbacks, and reduce incomes. If it does not work, the effort will be redoubled for an amplified effect on the destructive side. See the Burning Platform articlc (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.