MONETARY CRISIS REPORT
CLIMAX OF FINANCIAL FRAUD
COMPREHENSIVE GUIDE

* Intro Monetary Fragments
* Fiscal Crash for USGovt
* USDollar Challenged by Yuan
* Banks Reeling in Desperation Mode
* Japan Sees Bad Moon Rising
* France & Spain Reach Critical Phase


HAT TRICK LETTER
Issue #104
Jim Willie CB, 
“the Golden Jackass”
18 November 2012

"A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world's greatest civilizations has been 200 years." ~ Alexis de Tocqueville

"I am perfectly willing to be killed in the name of security, to have my organs sold to protect freedom, for my leaders to sell narcotics to finance our way of life, to have my fellow patriots jailed without due process to keep dangerous types away, to chant fascist incantations at public events in respect, and to have the votes rigged to assure the best candidates win, if it means that the American citizens are kept safe and secure and allowed to be free and mobile within the fenced borders. What incredibly mindless lunacy! This is fascism growing ripe on the dead tree of liberty, where capitalism has been trampled by corruption and gutted by devotion to war." ~ the Jackass

"In this environment, policy makers are finding their authority, credibility, and firepower being tested. In turn, they are finding it tempting to pursue financial repression, suppressing market prices that they do not like. But this is bad policy, not least because it signals diminished faith in the market economy itself. Now that I am out of government, I can tell you what I really believe. Central banks are now so heavily influencing asset prices that investors are unable to ascertain market values. This influence is especially evident with the Fed's purchase of government bonds, which has made it impossible for investors to use bond prices to learn anything about markets." ~ Kevin Warsh (former Federal Reserve governor)

"So here we are. Displeased with an incumbent's policies, presented with a worthy alternative, Americans took a pass and rested with the status quo. The reasons for this do not speak well for our national fabric." ~ Mark Davis (radio show host)

"When Europe hits a bump in the road, the Euro currency will tear apart at the core." ~ Milton Friedman

EDITOR NOTE: Given the pivotal and extreme importance of this election and the events on foreign soil related to embassies, a Special Report entitled "Rise of Fascism & Syndicate Exposure" is included in the November package. It might have belonged in a Crisis Coverage Report in the past, which was discontinued in November 2010. Such controversial topics will not be typically covered. But the fraud-ridden election (as forecasted) and the deception related to the Libyan events along with the purge at the Pentagon present a story that must be told. The developing roots of fascism with a strong national socialism cannot be overlooked, along with the important implications for a risk toward global rejection of the USDollar and repudiation of its USTreasury Bond debt. The story will be told with no follow-up. Do your own research to discover what is happening with the United States on its road to fascism with potential interruption. Amazingly, few care. Most people are in shock from the economic plight and financial jam they find themselves stuck in, while the other half is busy with American idol, finding the next party, playing video games (valuable for USMilitary drone weapon operations), and awaiting the next USGovt handout.

## INTRO MONETARY FRAGMENTS

◄$$$ THE US-STOCK MARKET DOES NOT APPROVE OF THE OBAMA RE-ELECTION, A BITTER AFTER TASTE. THREE FACTORS ARE AT WORK. THE USGOVT FISCAL PROBLEMS ARE NOT TO BE RESOLVED. THE ENTITLEMENT ECONOMY HAS BEEN ENDORSED, VERY COSTLY, SURE TO CAUSE A NASTY GLOBAL RESPONSE. THE OBAMA-CARE IS SEEN AS A BURDENSOME CURSE TO BUSINESSES. THE RESULT WILL BE SEEN IN DEEPER ECONOMIC RECESSION AND HIGHER UNEMPLOYMENT. $$$

Ryan Puplava summarized well the current confusion, predicament, and puzzle wrapped in the US stock market. He wrote, "Over the past few weeks, I have not seen more disagreement among market technicians I follow, along with my own work, until now. Last September, I made a laundry list of items I wanted to see that would indicate to me that the simple correction down to 1430 would continue much further. Many of the conditions for an intermediate top were confirmed when the market opened for trading following the election results. Breadth has rolled over, moving averages have been pierced, and buyers have not only left the building. But they are buying a ticket at the airport, with destination: CASH, until the Fiscal Cliff gets (un)resolved." Puplava goes on to describe a mass of contradictions and confusing signals riddled among the technicals. Lack of confirmation is evident. Breakdowns in moving averages are evident. Defensive measures are evident. Momentum has failed. A resolution cometh soon, but it will probable be ugly. See the Financial Sense article (CLICK HERE). A message to Ryan. Stop trying to make too much sense out of a very controlled manipulative and propped stock market. Remove the USGovt supports and the DJIA index would be 40% to 50% lower, confirming the recession that has endured since 2009 without respite or halt.

◄$$$ BILL GROSS OF PIMCO REPORTS ON THE TERMINAL PHASE. HE REBUTTS THE NOTION OF USFED LOW RATES BEING A STIMULUS. HE ARGUES THE CHEAP MONEY IS BEING INVESTED, AS IN SPECULATED. HIGHER COSTS ARE THE RESULT, A CONSISTENT JACKASS POINT. HE SEES A PERSISTENT ECONOMIC MORASS WITH LOWER CAPITAL INVESTMENT, AND THUS LOWER INCOMES AND FEWER JOBS. $$$

Bill Gross of PIMCO is a realist who speaks against the grain. His words are important because of his bond expertise, and due to a close alliance with the USDept Treasury. He argues that cheap money offered through zero-based interest rates and Quantitative Easing is often spent or invested. He overlooked curiously a powerful phenomenon of fund managers and wealthy individuals hedging against the USDollar debasement in aggravated volume, with commodity vehicles. That has lifted the cost structure, a steady Jackass theme. It is largely not going into new capital investment, a major consistent Jackass theme. The arrival of an industrial China precludes the normal kicking into gear the USEconomy from temporary low rates. They are permanent, and ineffective, but stuck since the USGovt cannot afford higher borrowing costs. Besides, higher rates would torpedo the entire US banking and derivative structures. Gross makes the point that the spending made easy merely extends the Recession, if not Depression, but in a manner limited in time. He warns the game is ending. He notes the absence of any significant productive investment, not enough to return to normalcy. Not enough to bring the jobless rate under 6%. Not enough to return prosperity to the middle class.

Gross wrote, "In the past three years of Quantitative Easing and financial repression, can we see a noticeable effect on investment as opposed to consumption? Is the Bernanke model working or is the $9975 being spent on consumption? At first blush, an observer might vote for the Bernanke model. After all, the stock market has doubled in three plus years, risk spreads are at historical lows, and housing prices are moving up, 10% higher in Southern California alone. Yet the real economy itself seems no different, still in New Normal gear. Surely by now, if the Bernanke model was as advertised, we would be seeing a pickup in investment as a percentage of GDP and a willingness to start saving 'seed corn' as opposed to eating 'caramel corn.' [It is not happening!!]"

Gross points to work by a new colleague on the PIMCO staff, who replaces Paul McCulley (retired). Focus on net national savings, which is the amount of government, household, and corporate savings that remains after the existing investment stock is depreciated. Savings has dwindled down to zero after reaching 7% in year 2000. It is actually negative since 2010, which just happens to be when the Quantitative Easing desperation set in by the USFed. Its 0% rate with unlimited bond monetization has been acting like a wet blanket atop a wrecking ball, since not temporary. It is a fixture in the monetary policy, precisely as the Jackass warned in summer 2009. The USFed talked of an Exit Strategy, and my words were contradictory and loudly stated, correctly so. ZIRP & QE are permanent, as forecasted.

Gross points out that no evidence exists that investment incentive is being realized by the QE largesse by the USFed central bank monetary policy. He admits the money created and freed up has elevated asset prices, but not any notable rise in corporate investment in production capacity. His focus is more directed at stock prices (asset) than hedging vehicles (crude oil, gold, silver, other metals). Thus no new jobs, only higher costs, the Jackass point harped upon for two full years. Capital destruction is rampant within the USEconomy. This continues to be an enormous blind spot by American economists, European too. They regard the ZIRP and QE as double doses of stimulus, when they are in fact double doses of capital poison. Gross confirms my consistent point of capital destruction, offering the evidence, but not repeating my precise point. He chooses the words financial repression, in describing a gateway to the terminal phase. See the PIMCO article (CLICK HERE).

◄$$$ A NEW OPPORTUNITY SUDDENLY ARISES, AS TREASURY SECRETARY GEITHNER WILL NOT RETURN FOR THE SECOND ADMINISTRATION. BIG RISKS LIE AHEAD FOR THE SUCCESSION, AS MULTI-$TRILLION CRIME MUST BE COVERED UP ON A CONSTANT CONTINUAL VIGILANT BASIS. SYNDICATE PROTECTION IS HIGHEST PRIORITY, FAR ABOVE ENACTING A SOLUTION. BIG RISKS ARE RISING FOR A USTBOND PROBLEM CENTERED ON DERIVATIVE SUPPORTS. SHEILA BAIR IS A VERY LIKELY CANDIDATE. GARY GENSLER IS ALSO A FRONT RUNNER, BUT HIS GOLDMAN SACHS TIES COULD BE A LIABILITY. WATCH FOR A DARK HORSE INSIDER WITH HIDDEN GOLDMAN SACHS TIES. $$$

The next avidly watched focused financial signal flare event will be the selection of a new Treasury Secretary for the Obama II Admin. If the selection emerges from the same old same old Wall Street and Goldman Sachs hideouts, then trouble brews. Given the deep disdain maintained by Wall Street toward Obama, the decision will be made more interesting with possible intrigue. Obama angered Wall Street firms with attempts to reach out for guidance following the Lehman disaster and financial regulatory discussions. But the executives almost without exception regard the Obama actions as stabbing them in the back, playing to the anti-banker public sentiment, and grandstanding in an amateurish manner. The see a loud pedagogue. The Obama Admin has been forceful in attempting to put the Financial Regulatory Bill provisions in force, which the firms believe is putting the screws to them.

Many expect the top priority of incoming Treasury Secy to be tackling the fiscal problems and debt limit issues. That is obvious. Mack is correct, that with all the coordinated bond monetization by foreign central banks, with all the anti-USDollar activity rallying around China on trade settlement alternatives, the next Treasury Secy will be challenged to know the global stage. With all the brutal sovereign bond crush in Europe, which could extend soon to France, contrasted against powerful interest rate derivative applications to keep the artificially low USTBond yields, the next Treasury Secy will be presiding over a wrecking field. The likelihood of a bond market breakdown and derivative buttress avalanche is high during the next four years. Furthermore, the Jackass expects the selection process to be quietly bound within the Wall Street camp, within touching distance of Goldman Sachs but not showing GS on the resume. That might rule out the corrupt insider Gensler.

In 2008, much banter was heard about requiring a Treasury Secy with experience of how the system works, so that on the job training could be avoided. That was nothing more than coded admission that criminal enterprised had to be protected. The top priority for the incoming Trez Secy will be to keep concealed the multi-$trillion bond fraud and counterfeit that centers on mortgage bonds sold by Wall Street firms, in addition to the $2.2 trillion in counterfeited USTBonds sold by JPMorgan. The counterfeit records were in World Trade Center Building 7 that was felled without aircraft impact. Given the public hatred brewing against JPMorgan, the slow development in the imploding Interest Rate Swap contract flying buttresses, and the mountain of investor lawsuits for mortgage fraud, the House of Morgan will be toppling or teetering. The next Treasury Secy must keep the defensive walls in place with dexterity, aplomb, and cool temperament, to defend against assaults like a USGovt debt downgrade, the next being with deeper consequence. Lastly, the new secretary must be in a position to tackle those who wish to extend the LIBOR bank scandal to two other highly charged third rail areas. The Allocated Gold Account scandal is pushing to the surface, what with Germany demanding its official gold to be fully accounted. The vast narco money laundering is also lurking around the corner, since the USGovt has championed foolishly this issue against big global banks for their Iranian transactions. If vengeance comes, the New York money center money laundering issue could blow up in the USGovt face. It has become engrained within the high level banking system, the US banks being by far the greatest criminal offenders. In fact, without narco money laundering, led by Bank of America and JPMorgan, the US banking system would have collapsed by 2009.

Sheila Bair is often mentioned, whose most recent post has been Chair of the FDIC. In the past positions she served as Senior VP of Govt Relations of the New York Stock Exchange, and the Asst Secretary for Financial Institutions. However, Bair might not evoke confident cover-up protection for the entrenched criminal Wall Street camp. Erskine Bowles is mentioned, Co-Chair of the National Commission on Fiscal Responsibility in the Obama Admin. He is touted by former Morgan Stanley head John Mack, for his global perspective, which Mack believes is much more essential nowadays. Jack Lew is mentioned, currently working as White House Chief of Staff. He has held posts as the Director of Office Mgmt & Budget, the Deputy Secretary of State, but more importantly a Member of the Council on Foreign Relations. Larry Fink is mentioned, currently Chairman & CEO of Blackrock. He has held posts as First Boston Bank Managing Director, but more importantly a Member of the Council on Foreign Relations. An outside dark horse is Roger Altman, currently Chairman of Evercore Partners, the former General Partner of Lehman Brothers, and former Vice-Chairman of Blackstone. He served as Asst Treasury Secretary in the Carter Admin.

A front runner for the job is regrettably Gary Gensler, the walking puke from Goldman Sachs currently serving as Commodity Futures Trading Commissioner. He has done well to appear to be fighting against the big banks, like with the investigations into the large Silver short position, and into the outsized short positions that are not economically justified. Given the criticism that GSax has taken over the sweet deal within AIG redemption of CDSwaps, and has been smeared in Europe over the Greek Govt debt concealment, another GSax obvious lieutenant might not happen this time around. However, my full expectation is that the next Treasury Secy will be somebody with hidden deep ties to Wall Street, who has shaken a lot of GSax hands, who knows how to wink and nod to South Manhattan.

Some talk has circulated that Chairman Bernanke at the USFed is not too keen on continuing beyond his tenured end in 2014. Janet Yellen is the front runner by default to be tapped as USFed chair, more likely than for the Treasury Secy. That debate is for another day, since not an immediate concern. My belief is that she is more honest than her resume indicates, and therefore not qualified for further consideration. The USFed head post is far more elevated in rank and importance, while the Treasury post is well suited for a veteran club member or a lackey to follow orders. The USFed post is designed for managing the helm, but the Treasury is for executing in the field like with the huge Exchange Stabilization Fund and the Fannie Mae criminal slush fund clearing house function. The Jackass expectation is that the Treasury post will go to an older veteran with a scummy background that appears clean, who shows less noticeably ties to inner Wall Street connections. It will not be a guy who seems like a jolly uncle at the dinner table that one can trust. Too much is at stake, with a potential USTBond asset bubble accident centered on falling derivative support structural beams. Too much is at stake, with possible criminal allegations coming against the banker elite in the next couple years, who are in charge of the USGovt finance ministry.

◄$$$ THE BANK OF ENGLAND FINDS THE GOLD STANDARD LEADS TO LESS CRISIS THAN THE FIAT REGIME. THE INTERNAL REPORTS URINATES ON THE BANKER FRONT DOOR OF POWER. THE CRISIS OF INSOLVENCY AND ECONOMIC RUIN WILL OVERWHELM THE BANKER ELITE. A RETURN TO THE GOLD STANDARD IS LOGICAL, BUT THE CRIMINALITY OF THE BANK CARTEL MUST BE ADDRESSED. IT IS BEING EXPOSED, BUT WITH AN  EXCRUCIATING SLOW PACE. $$$

Praise is in order for the Bank of England, as it released a research document that assaults the fiat money currency system as a failure in three important objectives. It has not provided for 1) internal balance, 2) allocative efficiency, or 3) financial stability. The international financial and monetary system (IFMS) has functioned under a number of different regimes over the past 150 years. Each has a different report card on performance, the worst being fiat money on all three objectives. The fiat regime is the favorite for the Syndicate, since crime flourishes unpunished. Its greatest failure is the systemic inability to maintain financial stability and minimize the incidence of disruptive sudden changes in global capital flows. The chart shows five-year moving averages. Notice how successful the Gold Standard years were until 1910, then how boring and stable and perfect they were from 1950 to 1973. The bankers could not tolerate rules that brought prosperity to the masses.

Do not look to the academic economist sphere for guidance, explanation, or enlightenment. Nor should one expect elucidation or solutions from compromised policymakers. They cannot identify the underlying problems in the global economy which have allowed excessive imbalances to build. They cannot explain the impeded corrective functions to counteract these imbalances in orderly adjustments. The current contrived system has resulted in dramatically more incidents of banking and currency crises than under a Gold Standard. That is the research conclusion at the Bank of England. It does not touch on deep bank criminality, the added spice of arsenic in every soup bowl imaginable.

The IMFS is the set of rules, practices, and institutions that facilitate international trade, while managing the allocation of investment capital across nations. An effectively functioning system should promote economic growth by channeling resources in an efficient manner across nations of the world. It should create fair and efficient conditions for international financial markets to operate in a smooth and sustainable fashion. It should discourage the build-up of balance of payments problems. It should prevent enormous imbalances and trade deficits, a direct sign of much like a 330 lb (150 kg) man. It should facilitate access to funds in the face of disruptive shocks. While there are some complementarities between prudent objectives, there may also be conflicts. These functions suggest that the ideal system should satisfy the following objectives:

A) Internal balance: the IMFS should enable countries to use macro-economic policies to achieve non-inflationary growth.

B) Allocative efficiency: the IMFS should facilitate the efficient allocation of capital by allowing flows to respond to relative price signals.

C) Financial stability: the IMFS should help to minimize the risks to financial stability.

The various IMFS regimes have involved different combinations of international and national frameworks. Members of the Gold Standard, for example, fixed their currencies to gold, allowed capital to flow freely across borders, and tended not to use monetary policy actively. So they gave ground on the internal balance objective in order to achieve allocative efficiency and financial stability. The Bretton Woods System (BWS) featured fixed but adjustable nominal exchange rates, constrained monetary policy independence, and enforced capital controls. It effectively sacrificed the allocative efficiency objective in order to allow greater control over internal balance and financial stability. The contrast to the present horrendous failure of the system is stark. In the current system, almost no binding international rules exist, which permits rampant corruption. Instead, a hybrid arrangement prevails in which countries are free to choose whether to fix or float their exchange rate and whether to impose capital controls or not. The current IMFS system affords countries the freedom to pursue policies to suit their domestic objectives, this flexibility opening the door to widespread corruption and government protection of criminal organizations. It has created insurmountable problems. The words of Tyler Durden describes a prozac patient working closely with a pharmacist. He wrote, "Fiat suppresses reality but the cumulative reality will always find a way to escape, in crisis." See the Zero Hedge article (CLICK HERE).

◄$$$ US-STUDENT LOAN DEBT HAS REACHED $500 BILLION. NEW DEFAULT RULES WILL APPLY, WITH THE USGOVT ASSUMING THE LOSS AFTER 20 YEARS IF NOT PROPERLY REPAID. THE LENDER OF LAST RESORT FOR FUTURE OPPORTUNITY IS THE USGOVT, AT A TIME WHEN THE USECONOMY IS NOT PRODUCING THE NECESSARY NEW JOBS. SMELLS LIKE ANOTHER SUBPRIME MESS BEING GROWN, SURE TO AMPLIFY USGOVT DEFICITS ON THE ROAD TO DEBT DEFAULT. $$$

Direct government student loans have exceeded half a $trillion, the new subprime lending project. Higher education costs are out of control. Another sharp increase in government financed student loans has come forward. The figure does not include the student loans guaranteed by the USGovt, but not funded by loans. Consumers no longer can tap their home ATM source for cash. As a result, consumer credit is on the fast rise again. Consumer credit rose by $11.4 billion in September, compared to the very large revised gain of $18.4 billion in August. Student loans drive the total higher. The non-revolving component, home to the student loan category, rose $14.3 billion in the month on top of a $14.1 billion gain in August. Revolving credit actually declined to $2.9 billion for the third decrease in four months. It is where credit card debt is tracked.

In an attempt to ease the problem of rapidly rising student indebtedness, the USDept Education made it easier to repay student loans. In early November, the department issued the final regulations for the new generous student loan repayment program. The president led the program, known as 'Pay as You Earn' which adds to the socialist burden the nation cannot afford. The new program allows some graduates to peg their federal loan payments to 10% of discretionary income, followed by complete forgiveness of remaining balances after 20 years. So this Extend & Pretend cousin will have a firm reward. The policy effectively makes the taxpayer responsible for funding a larger portion of higher education costs. The standard policy at universities with financial aid has been to help the lower income gifted students, but at the expense of middle class families who have seen an escalation in costs over two decades. The only way many middle class families can manage the high tuition payments is by tapping student loans in growing amounts. Unfortunately colleges often raise tuition simply because they can or because their competitors are doing it. All their costs are rising. See the Sober Look article (CLICK HERE).

## FISCAL CRASH FOR USGOVT

◄$$$ THE USTREASURY BOND MARKET COMPETES WITH HIGH GRADE CORPORATE DEBT, WHICH LOOKS FAR SAFER AND EXHIBITS MORE INTEGRITY. THEIR BALANCE SHEETS ARE STRONGER. THE BOND SHARE FOR SOVEREIGN DEBT IN THE OVERALL BOND MARKET HAS ALMOST BEEN CUT IN HALF IN THE LAST THREE YEARS. THE DEFAULT INSURANCE FOR THE USTREASURYS IS HIGHER THAN EIGHT DOW JONES INDUSTRIAL INDEX COMPANIES. $$$

A consequence has come to USGovt Bonds, which pay piddling paltry puny yields. The demand has moved to corporate bonds, whose financial condition is far better. The bond monetization ruinous practice does that. The USTBond demand has been soaked up by the broken USFed, which dutifully buys over 80% of all issued and recycled USGovt debt. The soaring diverted demand has enabled companies of all sizes to raise $1.2 trillion from issuing debt in 2012, already the busiest year on record, according to data provider Dealogic. US corporations sit on $1.73 trillion of cash, not to come back to the US anytime soon, a continuous deceptive outlook expressed by officials. The cash is discouraged from coming home to the United States by the Weimar bond production, ongoing burdensome federal taxes and regulations, within the threat of systemic ruin. The US corporations borrow at the lowest rates in history, and are arguably in the best shape ever, except that their customer base is insolvent and facing extinction with the cloud of martial law looming.

Some history was recently made. Bonds from Exxon coming due in 13 months were quoted last week at one basis point (=0.01%) less than the comparable USTreasury Bill, according to Benchmark Solutions. Bonds of Johnson & Johnson due in May 2014 also recently traded at one basis point below USTreasurys. Both are rated triple-A by Standard & Poors. According to Credit Suisse, the share of worldwide government debt rated triple-A has fallen to 39% of the total from 58% in early 2010. The sovereign debt merchants are losing ground, due to a faulty monetary foundation, reckless management and fealty to the banker elite, and debt saturation. Credit strategy analyst Fer Koch at Credit Suisse said, "Corporate bonds are definitely the new safe havens in this world." Big ooops for government finance ministers.

Another indication is the Credit Default Swap cost, which relates to insurance against bond default. The CDSwap cost for a 5-year USTNote is still below the average Dow Jones Industrial Index stock. However, several DJIA companies are perceived safer by the credit markets than USGovt debt, which grows uncontrollably and is supported by the USFed QE bond program and the leveraged Interest Rate Swap derivative machinery. The current CDS for a 5-year USTreasury stands at 37.35 basis points, which is higher than eight DJIA flagship stocks. Those corporations range from Merck at a meager 15.50 basis points, to Exxon Mobil, Chevron, McDonalds, Disney, 3M, Johnson & Johnson, and WalMart at 34.43 basis points. See the Financial Sense article (CLICK HERE). What comes next is the sound of the crash impact after falling off the fiscal cliff in 2008 long ago, whose sound finally is heard after a long delay. The speed of sound has been suppressed by the gods of Wall Street. It will be heard very soon.

◄$$$ THE OBAMA ADMIN HAS BEGUN A PUSH TO CONFISCATE IRA & 401K PERSONAL PENSION FUNDS. AS WARNED BY THE JACKASS FOR THREE FULL YEARS, PRIVATE PENSION FUNDS WILL BE CONVERTED TO USTBONDS. THE PROGRAM WILL BE INSTALLED WITHIN ALL EMPLOYERS, ALONGSIDE INCOME TAX AND SOCIAL SECURITY (FICA) TAXES. THE MANDATORY PROGRAM WILL BE UNAVOIDABLE. OWNERSHIP OF TOXIC USTBONDS WILL BECOME A NATIONAL PRACTICE WITH PUNY RETURNS, AND RISK OF LOSS WHEN THE USGOVT DEBT DEFAULT OCCURS. $$$

Three years ago, the Jackass had several conversations with family members and key friends, urging them to close their IRA and 401k fund accounts, pay the tax, invest in Gold & Silver, vault in GoldMoney outside the United States. My argument was that with a Gold price at $800 and a Silver price at $12, the punitive tax hit would be overcome in 12 to 18 months, since both precious metals would double in price. My advice was ignored by everyone contacted, causing some hard feelings. The advice turned out to be worthwhile and on the mark. It is late in the game to convert, take the tax hit, and proceed. But doing so is still a good idea, since the Gold & Silver price will double and then double again in the future. Removing large sums of money from the US banking system might be much more difficult nowadays.

Private retirement accounts are soon to be forced into long-term USTreasury Bonds, including both personally and professional managed funds. The Obama Admin is reportedly quickly moving on plans to nationalize private 401k and IRA retirement accounts, replacing them with government sponsored annuities. According to informed sources tuned into developments, a bill is before the USCongress would require all businesses to automatically enroll their employees in a new USGovt-sponsored IRA plan. Every worker paycheck would automatically see deductions, with deposits directed into this account. Passage of the bill would permit the USGovt to confiscate all organized private retirement accounts. Curiously, representatives of the AFL-CIO labor unions are advocating more federal regulation over private retirement accounts and the creation of USGovt-sponsored annuities to replace the 401k system.

The political spin actually being stated is that the 401k plans and IRAs are unfair to poor people. Deputy Treasury Secretary Mark Iwry, the driving force championing the program, is a habitual critic of 401k plans because of the favored treatment given the rich. He probably believes bank CDs also give favored treatment to the rich, due to the FDIC deposit insurance. The Jackass point has been steadily made every several months, that the USGovt will use the tax deferral feature of private pension funds, and the FDIC deposit insurance as leverage to confiscate pension funds and bank certificates of deposit. When the USGovt debt default occurs, these funds will be at great risk of loss, perhaps total. Consider it national re-hypothecation, a ticket to serfdom in the greatest country on earth, the beacon of freedom, and envy of liberty the world over. Count me out, as of January 2007, since the entire nightmare was seen in advance.

The program would be administered by the PBGC, the federal Pension Benefit Guarantee Corporation. This is the fund that guarantees pensions for corporations that file bankruptcy. How appropriate, since the nation (households, banks) is bankrupt. Realize that this program is a response to the horrendous corner the USGovt finds itself lodged in. The chronic $1.3 to $1.5 trillion federal deficit is not coming down, actually no effort to bring it down. The gap at this time is filled by the USFed in bond monetization, the printing of new money for the purpose of buying the new debt securities that nobody wants. The stalemate in the USCongress might find common ground in such pension fund attachments (not confiscations). The USGovt is pursuing a radical path to fund the $1.3 trillion annual deficit, using American citizen retirement funds. It is a pool of wealth, much like the money market funds, seen as vulnerable, just lying out there with no watchdog. It is not known whether the sponsored annuity based in USTBonds can be liquidated upon the death of the client owner. The battle might be ugly to win approval. See the Silver Doctor article (CLICK HERE). Investing in Gold & Silver seems 100 times better, especially if done a few years ago.

◄$$$ DEAD AHEAD, THE USGOVT WILL CRASH AFTER FALLING OFF THE FISCAL CLIFF. THE CLIFF IS NOT BEING APPROACHED. RATHER, THE NATION WENT OVER THE CLIFF ECONOMICALLY AND FINANCIALLY FROM 2008 TO 2011, WHEN THE FISCAL DEFICITS ROSE ABOVE $1.3 TRILLION EACH YEAR AND REMAINED ABOVE THE LOFTY LEVEL. NO ATTEMPT IS BEING MADE TO AVOID THE FISCAL DISASTER, MARKED BY FIVE STRAIGHT YEARS OF 13-DIGIT DEFICITS (OVER $1 TRILLION). ALL PLAYERS SEEM TO BE CONFORMING TO THE PARTY BATTLE LINES AND THE RULE OF PARTY HARDY. THE USGOVT DEBT LIMIT IS THE NEXT CRITICAL BATTLE, NOT THE BUDGET, WHICH WILL SEE HAGGLING AND LITTLE PROGRESS. $$$

The term Fiscal Cliff is laughable in usage. Since 2008, the USGovt debt has spiraled above $1.3 trillion in annual new debt burden, and remained above that level. Therefore, the United States has gone over the fiscal cliff, hardly approaching it. If the nation were faced with decisions to avoid a $1 trillion debt, then it would be approaching such a cliff. For over three years, the outsized debt has formed the impact crater for national finances. The US as a nation is crashing with a horrific impact on the debt made chronic. The mandatory spending cuts in January do not describe a cliff, but rather an economic impact crater. The entire imagery is ludicrous and misleading. Furthermore, the US has lost its motive or capacity to pursue solutions. So a solution will be imposed on it after global USdollar rejection. The focus of global initiatives that isolate the US will be on trade settlement and related banking functions.

The USGovt just ran a $120 billion deficit in October, a hefty 22% higher than the previous month. Nothing has changed the deadly trajectory on the path down after falling off the fiscal cliff. This marks the fifth consecutive year of an annual deficit exceeding $1.0 trillion, a correct Jackass forecast made in late 2008. Watch the ship of fools wrestle with the budget and national debt limit in the coming weeks. The president achieved a highly tainted vote mandate in re-election, but has shown no leadership on the issue. He barely attends meetings, but he sure looked presidential in reviewing the storm damage. With a handy earpiece to direct his comments, he sure looked in control during the debate. His supporters are oblivious to debt issues, concerned more about the glitz of the office and continued welfare state handouts. The Obama Admin has presided over four straight $1 trillion deficits, the first in history, which he successfully blamed on the Bush II Admin to an inept population. He has had ample opportunity to stimulate the USEconomy, but his main attempt was a state bandaid botch to fill their budget shortfalls. It had no simulus in the package. His GM rescue and clunker car credit was equally pathetic. Global confidence will hit new lows in the US stewardship, both banking and politics.

The USGovt business sheet has major problems. The tax revenue increased to $184.3 billion, up 13% than the same October month last year. Still the spending rose to $304.3 billion, a monster 16.4% rise. The budgeted fiscal year begins in October, where the norm has been to load a bunch of costs from late in the last fiscal year. The USGovt (so we are told) ran a $1.1 trillion annual budget deficit in fiscal year that ended in September. The final figure avoids special war costs and other inconveniences. The chronic $trillion deficit is lodged firmly. The debate remains of spending cuts, entitlement protection, tax hikes, wealthy tax break defense, with the tacit understanding never to discuss defense (aggressive war) costs. A package of tax increases and spending cuts is ready to take effect in January unless the White House and Congress reach a budget deal by then. They call it the fiscal cliff, but very improperly. Over the past three years, tax revenue has fallen below 16% of the total economy as measured by the Gross Domestic Product.  This data makes an ugly lie of the talk of recovery, since the decline confirms a recession, precisely as the Jackass has claimed. Spending has exceeded 22% of GDP. The USGovt has been forced to borrow to finance the 6% gap, which has pushed the cumulative federal debt to $16.2 trillion. The government is expected to hit its borrowing limit of $16.39 trillion by the end of December, unless Congress votes to raise it again. Watch the adolescent bickering, as it makes good theater. See the Fox News article (CLICK HERE).

The Extended Alternative Fiscal Scenarios are becoming a theater of the absurd. Projections reach exponentially to the heavens for debt, while the economic size measured by GDP stumbles. The odds are rising fast for going over the fiscal cliff, in the sense that a severe sequence of events in consequence is likely. The pathways are more clear, with the presidential election over, and the past patterns likely to extend in straight lines due to continued reckless behavior by the Obama Admin and the arena of partisan fools known as the USCongress. Harry Reid is a special kind of pugilist fool, who stole his own Nevada Senate re-election in 2008. Nancy Pelosi is another special kind of harlot fool, always there to protect her family investments. See the Zero Hedge article (CLICK HERE).

For a worthwhile tour of the USGovt debt nightmare on Pennsylvania Avenue, peruse the article by Antony Mueller from the Federal University of Sergipe in Brazil. He covers the size of the debt including its compounding due to interest, the interest rate (and inflation adjusted rate of interest), the determinants of public debt, and the options left to manage the debt. He urges free enterprise as part of the solution required in difficult decisions in many leading nations. That has not been the pattern, since crime is preferred over free enterprise. See the Financial Sense article (CLICK HERE).

◄$$$ SOCIALISM THAT GALLOPS INTO AMERICA LIKE A WRECKING BALL. THE ECONOMIC EFFECTS ARE EXTREMELY DAMAGING. NATIONAL INCOME IS DOWN HARD. THE FISCAL DEFICIT IS SURE TO RISE BY JUMPS. THE WORLD HAS BEGUN TO SHOW AWARENESS. $$$

The Obama re-election, whether tainted or not, brings extreme emphasis to a nasty concept of socialism. When adopted, when the welfare state expands, a certain tipping point can be reached. The wealth necessary to sustain a socialist system must be enormous, or else it topples when the beneficiaries grow too large. A great quote was heard, with unknown source, packed with wisdom. "Sooner or later, Big Government's clients will outnumber those who pay for the criminal extravagances of their voracious welfare state." How deeply and sadly true, a lesson few seem to comprehend.

Debt by nature is not bad or good, but rather depends on the usage and the borrower's standing. The private sector has reacted to the national excessive indebtedness by de-leveraging. Often to be sure, it has been done through bankruptcy and home foreclosure. Some paid debt down purposefully, while others under duress defaulted. Meanwhile, the USGovt has done the exact opposite. Since 2008, households and businesses have extinguished 67% of their debt when measured against GDP. In sharp contrast, the USGovt has ramped up its borrowing by 52% of GDP since 2008. When done for business purposes, hiring people, building the client base, expanding business, it is for good. When done for enriched entertainment like with an extra plasma television or a extra vacation or a new wardrobe or a lavish home addition, it is not for good. See the Testosterone Pit article (CLICK HERE) to monitor the data on the government drag on the USEconomy, and its refusal to participate in the debt reduction process.

President Obama will go down in history as the worst fiscal president in the nation's history, worse than Bush Jr. The USGovt will be bankrupt after another four years of on the same path. The end of the road with a debt default should arrive before his tenure ends. The Fitch debt rating agency has threatened another debt downgrade, which will cause a wakeup call possibly, but possibly not. Charles Biderman from TrimTabs summarized the painful medicine from the last four years. Since Obama took office, the after-tax takehome pay for citizens who pays taxes is still down by 5% nominally (before any adjustment) and down over 10% after inflation. The outspoken and vitriolic Biderman said, "My guess is that Mr Obama and his close buddies have no idea what they are doing, or else they would not be doing what they have been doing. The most dangerous are those people who think they are smarter than they are." See the Zero Hedge article (CLICK HERE).

A slight disagreement here. My belief is that Obama was selected to bring down the nation, and to establish a marxist dictatorship on the scorched earth and ashes. The ObamaCare project is the extraordinary wet blanket to smash small business. The most dangerous men are those who sabotage the system and deceive the public along the path to destruction. That opinion is confirmed by some powerful contacts who have access to various US security agencies, the same who operate puppet strings to the White House. They gave Obama the marching orders in January 2009, with a $1 billion reward payoff to get the job done. They selected him after he cut his dirty teeth on a special project in Chicago several years ago. With his influence, he helped to steal Household bank accounts to cover several gutted Arkansas banks. The project was a favor done to benefit Clinton, who needed to cover some old tracks. Rahm Emanuel was involved, later rewarded with the post of White House Chief of Staff. He used the post as a platform to become the Mayor of Chicago. It is all a twisted tangled ugly web of corruption. The Fascist Business Model has many sides, many leaking swill ports. This is one.

◄$$$ SIGNIFICANT JOB CUTS WILL FOLLOW THE OBAMA RE-ELECTION VICTORY, EVEN IF TAINTED. SMALL BUSINESS WILL REACT TO THE HIGHER COSTS. THE UNCERTAINTY HAS BEEN REMOVED, WHILE THE CORPORATE OPPRESSION BECOMES MORE CLEAR. THE COST BURDEN WILL RESULT IN WIDESPREAD JOB CUTS AND PRICE HIKES, SURE TO HAMPER THE USECONOMY AND MAKE WORSE THE RECESSION IN PROGRESS. THE JOB CUTS ARE THE MICRO-ECONOMIC EFFECT. THE FISCAL DEFICIT GROWTH IS THE MACRO-ECONOMIC EFFECT, ALONG WITH GLOBAL REJECTION. $$$


The stories are many, but they all read the same. More costs to businesses. They object but have no choice. So they are cutting jobs in response. The Obama Admin has almost no concept of capitalism or business. Plenty of talk, but most action is counter-productive. Thousands of businesses will no longer wait for more certainty. They know that new national health care system will be enforced, and will respond with job cuts and price hikes. They know of the higher embedded taxes. They will release workers, as they raise prices. The colossus of the federal machinery will impose its extreme inefficiency and corruption next.

Murray Energy Corp, whose Utah subsidiary runs the coal mining project in West Ridge located in Utah, has taken action in response. Bob Murray laid off 102 Utah miners right away after the Obama win, pointing out that the takers outnumber the producers among people nationwide. They have spoken. So he has reacted. He asked for understanding for decisions that his company must make to preserve the very existence of any of the enterprises built over many years with hard work and good judgment. See the Salt Lake Tribune article (CLICK HERE). His story can be re-told by an archipelago of companies scattered across the nation.

The Kevin Wall talk radio show in Las Vegas attracted much attention for an interview it ran with an established Las Vegas business owner. During the interview, where the owner remained anonymous, he explained his business situation, which is repeated across the land. He has 114 employees fired 22 workers the day after Obama won the re-election. He chooses to survive in his business in the wake of the national health care program and its tax imposition. Radio show host Kevin Wall on KXNT pronounced the message that elections have consequences and that ultimately the business needs to survive. The quote from the unnamed business owner is heart felt and compelling, but based in wise decisions. It is worth reading. See the CBS Local article (CLICK HERE).

The owner of the national restaurant chain Dennys reacted in a different way. John Metz has given orders for a new 5% surcharge to be put on every customer bill, which will cover the ObamaCare expense. The menu will not change otherwise. He also will cut back on worker hours. Some precedent exists, as airlines attach a surcharge on ticket costs for the added security measures mandated following the 911 attacks. Metz boldly comments that customers can tip the wait staff less, since they ultimately are the beneficiaries of the national health care program. Games are being played by businesses with part-time status and work hours, in order to comply or work around the new law. Either workers are cut or prices rise, in response to the socialist measure to impose health care in a national program. See the Huffington Post article (CLICK HERE).

## USDOLLAR CHALLENGED BY THE YUAN

◄$$$ THE CHINESE YUAN COULD GRADUALLY BECOME THE GLOBAL STANDARD SETTLEMENT CURRENCY AS FAR AS TRADE IS CONCERNED. THE CONSEQUENCE WILL DIRECTLY AFFECT GLOBAL BANKING RESERVES MANAGEMENT. IT IS UNCLEAR HOW THE QUASI-STANDARD WOULD AFFECT RESERVES HELD IN THE MAJOR GLOBAL BANKING CENTERS. TRADE DICTATES CURRENCY ADOPTION, WHICH LEADS TO BANKING SYSTEM ACCUMULATION OF RESERVES. NATIONS HOLDING MORE YUAN CURRENCY WILL CONDUCT MORE TRADE WITH CHINA IN A VIRTUOUS LOOP. THE UNITED STATES WILL BE PUSHED OUT OF THE TRADE LOOP. $$$

Much debate and consternation have come concerning the ascendance of the Chinese Yuan currency, in its upcoming role to replace the USDollar as the world's reserve currency. Implications to bank reserves management are important and huge. Trade settlement adopted standards will drive the shifting process. Unlike what many American analysts believe, the Yuan is coming on fast to take over the role as trade settlement currency, a big blind spot to Western think tanks. The Asians have almost adopted it in a uniform trade pact, for usage widely. The phalanx of the Chinese bilateral swap agreements clears the path for wide usage. Asia is already committed to Yuan usage, since they wish to avoid the USDollar subject to unbridled USGovt debt and unfettered USFed inflation, the risk compounded by bond fraud. Arvind Subramanian and Martin Kessler at the Peterson Institute of Intl Economics commented on the arrival of the Renminbi Bloc. They wrote, "A country's rise to economic dominance tends to be accompanied by its currency becoming a reference point, with other currencies tracking it implicitly or explicitly. For a sample comprising emerging market economies, we show that in the last two years, the renminbi (RMB) has increasingly become a reference currency which we define as one which exhibits a high degree of co-movement with other currencies. In East Asia, there is already a RMB bloc, because the RMB has become the dominant reference currency, eclipsing the dollar, which is a historic development."

The same authors present a case for the Chinese currency ro rise in a region that the United States has dominated for several decades. Except for Hong Kong and two other minor nations, the USDollar has been largely abandoned in Asia. It appears that China is lifting all of East Asia, by serving as its primary customer in trade. East Asia is already forming as a Renminbi trade bloc. The currencies of seven out of ten countries in the region (South Korea, Indonesia, Taiwan, Malaysia, Singapore, and Thailand) track the Chinese Yuan more closely than the USDollar. For example, since mid-2010, the Korean Won and the Yuan have appreciated by similar amounts against the USDollar. Only three economies in the group (Hong Kong, Vietnam, Mongolia) still have currencies following the USDollar more closely than the Yuan. The main force behind the currency shifts is trade. The Chinese share of East Asian manufacturing trade has risen from 2% in 1991 to about 22% this year. Countries that sell to the growing Chinese market, or which serve within the vast supply chains focused on China find an advantages of maintaining a stable exchange rate against the Yuan currency. It simplifies business and its accounting. Beijing leaders have been repeating the 2% to 3% cost savings repeatedly in a corrall process.

The authors concluded, "This development has two implications. First, it is one more important marker in the shift of economic dominance away from the US and towards China. Not only is China, by some measures, the world's largest economy in purchasing power parity terms, the world's largest exporter, and the world's largest net creditor (for more than a decade), but the Renminbi bloc has now displaced the Dollar bloc in Asia. The symbolism and its historic significance cannot be understated because East Asia, despite physical distance, has always been part of the dollar backyard." See the Financial Times article (CLICK HERE).

Frequently a rehash of easily rebutted arguments must be done, since much disinformation circulates concerning the Chinese Yuan and its ascendancy. The critics seem ignorant of the absent US industrial trade, at the same time bond fraud has cut off investment trade. The USDollar and USTBond are being isolated. Shedlock makes a silly comment that no nation wants ownership of the reserve currency, since currency wars are proof. How absurd! Currency wars are about preventing a home currency exchange rate from rising sufficiently to render deep harm to the domestic export trade. Such wars have nothing to do with global currency reserves, except that successful nations observe their native currency rising against the US$ benchmark (reserve today).

Some believe the Chinese Yuan could never act as global reserve since the Chinese bond markets are not big enough or deep enough. The volume is too small. True enough. But a massive additional economic expansion could be enabled if the Chinese embarked on a broader more liquid bonded security debt offering program. They could field a bigger military, for instance. They could buy all the world's shipping facilities and distribution centers. The risk would be taken by foreign investors. Foreign direct investment in industrial plant and equipment would be replaced by bond offerings. Furthermore, if more nations hold the Yuan as reserve currency, they are more likely to conduct large scale trade with Chinese companies. This is the whiplash against the USEconomy, as foreign nations will eventually grow intolerant of unfettered US bank corruption and reckless USFed monetary policy deeply committed to hyper monetary inflation. Some believe owning the reserve currency is a a curse more than a blessing. Sometimes it is, especially when it forces a harsher scrutiny on bad economic policy, corrupt banking practices, and lazy fat citizenry who would rather collect welfare than work. Owning a reserve currency often results in tremendous debt buildup, due to inertia. Some believe that China does not want to command the global reserve currency. This point is totally incorrect, as Chinese leaders eagerly desire the associated respect and global leadership that comes with the reserve currency seat. It brings power!!

Even though Michael Shedlock believes Michael Pettis to be the foremost expert on international trade, his admired analyst made some highly obtuse comments. He has his cranium squarely placed up his rectum with the point that the United States does not exact any exhorbitant privilege by controlling the global reserve currency. Pettis actually called it a burden to the USEconomy. Incredibly obtuse, since the USDollar control enables vast bond fraud and USTBond counterfeit in the multiple $trillions for each. Its control enables a consumer economy that does not pay its bills, otherwise known as undeserved higher standard of living. Its control also enables larger deficits without obstacle for welfare state expansion or adventure, even aggressive wars without obstruction.

This erroneous viewpoint to deny advantage is common among the entrenched financial harlot community led by Wall Street. Also, contrary to Pettis logic, an artificially lower interest rate afforded by global purchase of the USTBond debt securities has enabled much lower costs for consumer loans and even mortgage loans. Pettis claims that no country can accumulate its own currency in reserves. Tell that to the US Intelligence agencies, which accumulate containers loaded with shrink wrapped $100 bills in the multiple $billions. They also store hundreds of $billions in US$-based accounts in the Panama and British-dominated Caribbean banking system. The rest of Pettis commentary should be ignored. See the Global Economic Analysis article (C LICK HERE). Shedlock provides some excellent information and analysis at times, but also some truly dumb stuff to make his work very inconsistent. From comments taken by subscribers who have met him, Shedlock spends a lot of time admiring himself with a frequent highly arrogant tone. Fame has gone to his head.

◄$$$ CLEARING THE PATH FOR GLOBAL CURRENCY. NEW METHODS ARE LINED UP TO BOOST INTERNATIONAL USAGE OF THE YUAN. IN THE LAST TWO YEARS, AN IMPRESSIVE SURGE IN YUAN USAGE IN GLOBAL TRADE HAS BEEN REALIZED. MORE IMPROVED YUAN CLEARING FUNCTIONS ARE REQUIRED AND BEING URGED BY TRADE PARTNERS. ONLY 10% OF CHINESE TRADE INVOLVES THE YUAN CURRENCY, THUS A SMALL HOT MONEY RISK. THE PROCESS IS EVOLVING TOWARD THE YUAN ACTING AS A GLOBAL TRADE STANDARD, WHICH IS PRECURSOR TO GLOBAL RESERVE CURRENCY. $$$

Irony runs thick. The SWIFT organization actually advocates a more efficient system to be in place for facilitating the increasingly wide use of the Chinese Yuan in global transactions. The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is the platform among international banks. But China might act as intermediary for Iranian banks. The irony is due to the SWIFT weapon used by the USGovt, then withdrawn. Global use of the Yuan currency has surged. In August the Yuan usage rose to 14th in the table of payment currencies, up from 35th in October 2010, according to the organization's report. Bilateral swap facilities arranged by Beijing paved the way for the advance. Making payments in Yuan means domestic companies will see lower borrowing costs and reduced foreign exchange risks. The Peoples Bank of China estimates that overseas importers can save 2 to 3 percent on their invoice bills by paying in Yuan. That adds up fast. In addition, the report stated that some buyers of Chinese products and their suppliers prefer the currency. It is less a bone fought over like the USDollar.

The PBOC central bank has been working to ease so-called hot money fears. If the Yuan is suddenly the victim of fast money exiting China, then a wide assortment of trade partners will suffer the impact on exchange rates. But China is not Thailand, the site of the 1995 Asian Meltdown. Consider that trade denominated in Yuan accounted for only 10% of China's total foreign trade in July, the SWIFT report stated. The low figure reduces hot money risks greatly. Patrick de Courcy serves as head of Asia-Pacific markets for the organization. He believes the path of the Yuan's further acceptance in global markets will involve three phases: trade finance, investment, and reserve currency. He identifies challenges ahead, such as improvements to offshore clearing functions in Yuan usage. He called for an enhanced platform. Seamless routing is desired, executed quickly. A typical payment in USDollars can be settled within seconds, while settling in Yuan takes much longer.

Offshore Yuan clearing can be accomplished in two ways. The first would have the transaction go through the designated clearing bank, Bank of China in Hong Kong. The second option would have it go directly to a Yuan agent bank on the mainland. As of now, the Bank of China (located in Hong Kong) processes about 80% of offshore Renminbi transactions. Some limitations exist. The HK center has extended operating hours since June to facilitate businesses in other time zones. But the foreign exchange market in Hong Kong closes at 5 pm, which obstructs European markets from overnight trading. The second agent bank route handles 20% of the Yuan clearing volume, in which cash can only be withdrawn from the People's Bank of China at 9am the next day. This is cumbersome. Many European companies hoping to use the Yuan more extensively complain about the slow payment process and difficulties in obtaining approval for letters of credit, according to a recent survey by the Deutsche Bank. See the China Daily article (CLICK HERE).

By the way, in a defiant action South Korea has resumed its purchase of Iranian oil. In the spring months of 2012, the Asian powerhouse had complied with USGovt pressures to avoid further oil trades. No longer. The resumption indicates the possible interweaving of Chinese Yuan swap funds or other devices in a workaround. China has a deal already in place to handle any Russian oil trade settlement. It would be an easy extension for China to handle Korean oil sales also. See the Fars News article (CLICK HERE).

◄$$$ THE ENFORCED HONG KONG CURRENCY PEG TO THE USDOLLAR IS UNDER RENEWED STRAIN. DUE TO THE PRESSURE, FUNDS FLOW TO CHINA. THE  HONG KONG DOLLAR EXCHANGE RATE IS SLOWLY RISING. STRAIN IS SEEN IN THE H.K. PROPERTY MARKET. EVENTUALLY THEY WILL ABANDON THEIR USDOLLAR PEG WITH SHARED MONETARY POLICY. SOMETHING BIG IS HAPPENING, WHICH WILL BE MADE CLEAR OVER TIME. $$$

The Hong Kong Monetary Authority moved to weaken their domestic currency in response to a slow rise. In late October, the HKMA sold 4.67 billion HK dollars (=US$0.60 bn) worth of foreign bonds to reduce the value of the local currency. Over the last two weeks in November, another US$3.5 billion has been sold in addition. The HKDollar started trading at 7.7500 per 1US$, the upper limit of its managed trading band. This is the first time since December 2009 for the HKMA to intervene in the FOREX market to balance the massive capital inflow that Hong Kong has received in recent times. The Quantitative Easing (QE) program by the USFed has combined with the European sovereign debt crisis to hasten the movement of money seeking safe havens. An official HKMA statment read, "The recent increase in demand for the local currency is related to a less strained European market, weakness in the USD, and declining US interest rates, which have prompted capital inflows into currency and equity markets in the region." To the point and covers the global blemishes. The Hong Kong monetary position is different from the other Asian nations, since the city's interest rates are aligned to that of the United States, and a narrow currency band is enforced. Hong Kong authorities do not want cheap money flooding into the property markets to push already high prices even higher. They are already worried about a property bubble and a likely crash later. See the Information Daily article (CLICK HERE).

KC Chan, Secretary for Financial Services and the Treasury, re-asserted the rigid Hong Kong commitment to the pillar of its monetary policy. The currency peg has endured for 29 years. In the past it removed fluctuations and volatility, the likes of which damaged Thailand and Korea in 1995. Nowadays, the city state has been under pressure as it operates as China's window to the West, even its clearing bank for trade. Chan insisted that the monetary policy will not change. Along with Japan, the Hong Kong banks have been a popular destination for Asian money seeking safety from the reckless USFed bond monetization cancer. See the Market Pulse FX article (CLICK HERE) and the SCMP article (CLICK HERE).

Some comments came from a sharp bond and currency analyst contact watching the situation closely. He pointed out that over the last two weeks, the HKMA has intervened four times to hold the peg, which itself is unprecedented. It means that pressure is building with the destructive policy adopted by the USFed. Also, the usage of Chinese Yuan is increasing at the expense of the USDollar, since Hong Kong serves as the new trading center for trade settlement clearing functions. With the HK rates aligned to US rates, significant hot money is forced into real estate, causing a bubble atop what was already a richly priced market. The authorities have taken various measures to curb the extreme pressure point in the property market. Money has begun to flow back into Mainland China, prompting the HK officials to expand the property tax to more areas. We are starting to see something unusual and defiant. It is capital control in reverse, essentially telling the Americans to keep their USDollars with them. It is a de-facto devaluation of the USD via taxation. If clients wish to exchange USD, fine. But the conversion will be done with a tax imposed. The end game is moving quite fast as a lot of USD seems trapped and is desperately seeking avenues to invest in and diversify.

The HK banks have imposed measures to curb the property bubble. They are requiring buyers to post more capital (down payment) and limit the tenure of mortgages to 30 years. They are using regulations to curb the monetary speculation. Hence breaking the currency peg is going to be very difficult. The peg will eventually break, but only when pressure reaches extreme levels, and the USDollar loses its prestigious role in trade settlement more emphatically. That event could come with the removal of the US$ payment related to Saudi and OPEC oil sales. The decision will be political. If not done with a Petro-Dollar disruption event, the decision will coincide with a serious break in China-US relations. The scrapping of the HK currency peg will be a very big geo-political signal. Hence it will not happen without a major event. An important question is whether the pressure on the HKDollar due to moderate speculation driven by the USFed policy of USDollar debasement, or whether the smart money genuinely is looking to diversify away from the USDollar as its demise is near. My belief is both are at work, one a short-term factor, the other a long-term factor.

Any global peg to the USD is bound to fail after sustained pressure. About a year ago, my excellent gold trader source was asked his view on the HKD. He does significant business with both Hong Kong and mainland China wealth funds. My main point made with him for months up to that point was that the HK bankers had hitched their wagon to a broken train. My expectation was for them to break ranks and abandon the peg soon. The Voice shared the perspective that the HK bankers had a backup plan, but the time was not yet right to execute it. They were very busy attracting Mainland China money into the safe haven of HK banks, and enjoyed the relish of heavy fees. They will manage the consequences with the real estate market. The price inflation pressures were rising, but were being ignored at the time. My belief is that the contingent plan described by The Voice is nearing execution, not next month, but in the near future. Time is running out for the USDollar.

With all the recent commotion happening inside China with banks, stocks, coins, commodity order cutbacks, Japan strains, my gut tells that the HK-China connection is under some new strain. However, in offset is the giant role played by HK in trade settlement clearing functions. The strain is showing, and resolution will come. In my view, a race is on to see which abandons the USDollar first, Hong Kong or Saudi Arabia. My bet is the Saudis, since assault on the royal regime is multi-faceted. Tremendous disruptions come for the USDollar and soon, in consequence to the US elections and the fiscal failures.

◄$$$ THE ARRIVAL OF PRICE INFLATION WITHIN THE UNITED STATES IS NEXT, OF THE PAINFUL VARIETY. THE USDOLLAR PROBLEMS WILL CAUSE PRICE INFLATION, RATHER THAN PRICE INFLATION RENDERING HARM TO THE USDOLLAR EXCHANGE RATES. A CRUCIAL DISTINCTION. THE USFED BOND PURCHASES AND USGOVT DEPENDENCE HAVE UNDERMINED THE GLOBAL PRESTIGE BEHIND THE USDOLLAR. HOWEVER, THE GLOBAL REJECTION OF THE USDOLLAR IS FAR MORE A FACTOR FOR THE ARRIVAL OF PRICE INFLATION WITHIN THE USECONOMY. IT COMES NEXT. $$$

The gold community is abuzz about the onset of radical price inflation. It will not arrive directly from the USFed bond monetization, even though their hyper monetary inflation is ramped up with steroids. No question that the central bank has installed a vast inflationary apparatus, starting a few years ago with numerous (alphabet soup) liquidity facilities, and climaxing with a series of unsterilized and sterlized bond monetization initiatives. However, the price inflation has been contained from widespread economic damage, seemingly intentional deep harm to worker income due to job cuts, and common liquidations of businesses. The USFed research calls it the restriction of final demand, enough to calm commodity prices. The financial sector has been the first, second, and third recipients of the monetary largesse, seen in the form of bond redemption and bailouts to cover huge losses. The effect has not overrun into Main Street where businesses are run and people are employed. The economic effect is dominated by wreckage and liquidations, not higher wages to meet the rising costs for everything. The higher cost structure is the principal effect felt in the mainstream economy, extended from the USFed QE programs. That is NOT systemic price inflation, but rather something worse where people and businesses cannot handle the higher costs. Income is not rising, nor is final product pricing.

The price inflation soon to hit the USEconomy again will be much like what hit in 2011, given as prelude. Rising costs were felt due to the badly debased USDollar. Back then, the USDollar was more isolated in the impact effect. In the last year, the impact has been shared by mutually assured destruction among the major currencies, as each major central bank has joined the QE debasement parade. Thus the Gold price has risen even when the USDollar DX index has been flat for seven years. The central bankers have side-stepped the Competing Currency War, by turning to universal uniform debasement. What comes next is the rejection of the USDollar and repudiation of the USTBond, its main vehicle. Price inflation will hit the nation from a weakened currency, which will be increasingly isolated. The impact will be located on rising cost structure for households and businesses. But it will be much greater than 2011.

Many pundits have it backwards, as usual. The USDollar will not be harmed as a result of price inflation hitting the national economy. Instead, the USDollar will fall in valuation, resulting in higher import costs and thus higher price inflation. Focus on the US Socialism endorsement, combined with refusal to deal with the USGovt spiral of deficits, both will lead to USDollar rejection. It will take place in trade settlement. Do not expect hyper-inflation to hit the states anytime soon, at least not until the USDollar is rejected. What businesses will increase wages across the board? None. It is not that the US domestic price inflation will rise high enough for the USDollar to be replaced. It is that eventually the USDollar will be so isolated and ignored that the impact will hit the USEconomy which will cause price inflation and supply shortage.

Expect shortages to arrive in the next year, from controlled market price efforts. The controls will be done in pure Socialism lunacy. The maestros never stop attempting to control the financial markets, as almost every single one is under heavy control mechanisms. As for when the USDollar will no longer be used in global trade, difficult to say, but the movement is gaining momentum in a frightening pace. The USDollar will continue to be used with Eastern Canada, Breat Britain, and most of Western Europe. However, the isolation from the rest of the world is being planned, with platforms ready to be implemented, sure to occur by 2014-2015.

## BANKS REELING IN DESPERATION MODE

◄$$$ DAVID EINHORN EXPLAINS HOW BEN BERNANKE IS DESTROYING AMERICA. THE ZERO PERCENT POLICY IS HARMING CAPITAL, WITH A NET DAMPENING EFFECT. A MULTIPLER EFFECT IS AT WORK FROM EXPECTED SMALL FUTURE RETURNS ON SAVINGS. GROUP THINK BY ECONOMISTS IS A USELESS RUBBER STAMP. THEIR MACRO MODELS ARE USELESS, SINCE THE CURRENT CLIMATE HAS NO DATA SAMPLE FROM THE PAST. THE MORAL HAZARD HAS OPENED UP GIGANTIC TAIL RISKS. CHAIRMAN BERNANKE HAS WRITTEN THE USGOVT DEBT EPITAPH, BY COMMITTING TO THE LAST ASSET BUBBLE IN USTBONDS. $$$

David Einhorn is from Greenlight Capital has fast become an insightful superstar. He barely looks 25 years old, but he is both bold and brilliant. He dissects what is wrong with the USFed constant punch bowl theme, dubbed QE, the free monetary lunch. Einhorn essentially accuses the central bank of wrecking the nation with destructive monetary policy, acting as the liquor dealer with infinite supply and near zero cost. More is not better, and forever is not temporary. The Jackass point made for over a year is that 0% destroys capital. Einhorn would concur with my main theme, as he adds many points to the indictment. Here are his major points.

USFed policies are not helping the USEconomy, but rather actively destroying it. Group-Think contributes to expanded and amplified false assumptions, having produced a wrong-minded consensus. The entire established economist community has chosen the perpetuation of their jobs, their tenure, and their paycheck for as long as possible, and thus backs the Chairman fully and unconditionally. Research funds and salaries are at stake. The ever easing monetary policy has reached beyond the point of diminishing returns. Their policy is a major drag, a headwind that slows any recovery. The investment community merely front runs the USFed, with no mind at all, seeking a risk-free trade. The result is fewer market participants, lower bank bank revenues, bank employee terminations, lower federal and state tax refunds, and so on, in a vicious cycle. The central banks have seen broken ranks with the recent Bundesbank decision to pull its gold inventory from London. It faced the quintessential dilemma, and made the right decision in full accounting.

Einhorn misses an important point. He assumes that the motive of the USFed actions behind Quantitative Easing is centered on best intentions to stimulate the economy at the consumer level, to produce jobs, and to kickstart the recovery. That is grossly incorrect. The QE motive is to avert a USGovt debt default, to avoid exposure of the global disdain shown by typical USTBond holders (boycott) to purchase new debt, to enable the redemption of toxic fraud-ridden mortgage bonds, and to cover up multiple $trillions in mortgage bond fraud and USTreasury Bond counterfeit. To be sure, Einhorn deserves credit for his boldly stated position presented at the Buttonwood Conference.

Einhorn goes on with sharp astute criticism, much of which coincides with Jackass points. He points out how lower rates drive up the cost of commodities, especially food and energy. The oil costs go directly out of the country in flow of funds. The absent yield on savings causes both higher risk investments and money hoarding in the form of money market funds. Money exits the banking system. The hoarding from denied interest on individual savings is driving down consumption and business expansion. The USFed policies are protecting the upper class at the expense of the shrinking middle class, in an ongoing catastrophe. A change in behavior is in the works, a profound change, as a consequence of multiple years of a Zero Interest Rate Policy, probably to last at least seven years, very likely until the runaway inflation finally slams the nation. The dampening effect from low yields is at work, to enforce a change in behavior on a multiplied basis. Most theoretical macro economists are locked within their myopic models, never having worked in the real world, never having held responsibility for profit & loss. Their sample sets do not include the current financial situation in any similar past era, which is both bizarre and the new norm. No macro models have any value whatsoever anymore. The moral hazard has opened up gigantic tail risks, which means extremely unlikely events suddenly thrust forward as highly likely. The main perceived risk is that the USFed loses control or suffers from its own insolvency.

The last 15 years have been spent learning that a monetary policy to create asset bubbles is both bad science and highly destructive to economies and wealth. Yet the USFed is desperate to find a new asset bubble to replace the housing & mortgage twin bubbles. That new bubble is the USTreasury Bond itself. The central bank knows nothing else, only inflation engineering. One should not criticize an institution steeped in inflation science from doing what it does best, creating the next bubble. The USTBond bubble is the last bubble, the Towel of Babel as described by the Jackass this May, to be followed by the Black Hole when it collapses most assuredly. Accolades and Nobel Economics Prizes mean nothing when those receiving adulation and holding medals preside over ruin. The same goes for Obama and his spurious Nobel Peace Prize without a single accomplishment. That was a giant FU to the world from the narco barons.

The epitaph of the central bank franchise system has been written by Bernanke. By promising to continue the QE until the USEconomy recovers convincingly and until the labor market improves, the Chairman is issuing a death warrant. The QE and ZIRP assure continued capital destruction from a rising cost structure, reduced business investment, and inefficient allocation of capital toward speculation. The hedge practices conducted in defense of the caustic USFed monetary policy work against recovery and improvement. The take money out of the system and raise costs, in a vicious cycle. The big banks are committed to the USTBond carry trade for easy profits, guaranteed by the USFed itself. More money removed from the system. Such aberrant bank behavior also assures inadequate capital for business formation at a time when the cost structure is rising. The economists at the USFed must realize this, but they are committed to toxic bond redemption and bond fraud coverup. They are also liars. The monthly commitment of $40 billion for bond purchases is actually $85 billion per month ($1 trillion per year), made clear in public statements with much smaller audience. See the Zero Hedge article (CLICK HERE). The central bank monetary policy is managing a death process, an unstoppable pathogenesis.

◄$$$ US-BANK REGULATORS BACKED OFF ON THE HARSH RESERVE REQUIREMENTS THAT ARE KNOWN AS BASEL-III. THEY BLINKED BECAUSE THE US-BANKS DO NOT HAVE THE ADDITIONAL $1 TRILLION IN COLLATERAL REQUIRED TO FORTIFY THE DERIVATIVES INSANITY. THE NEW HARSH RULES ARE INDEFINITELY PUT ASIDE AND POSTPONED. THE INSOLVENT US-BANKING SYSTEM WILL REMAIN A SHAM SHELL GAME. $$$

Predictably, in early November the USFed issued a statement to notify of the fromal delay in implementation of the Basel III capital rules which were to go into effect January 1st. Apparently JPMorgan and Goldman Sachs whined that they were not ready for the implementation, and were hundreds of $billions short on the collateral required. The prudent but harsh rules have been postponed indefinitely. So no additional capital buffers will be required to sustain the $zillions in derivatives which serve as levered cables and pylons for the US banking system foundations and platforms. In a fit of prudence last June, the US Federal Reserve and two other bank regulators introduced a proposal to implement the global strictures that suggested an effective date of January 1st for compliance. However, the regulators admitted to hearing a wide range of views of the urgent need for delay, in their words from the affected financial firms.

Conclude that the big US banks do not have the funds necessary to provide collateral for over $100 trillion in derivatives put in place since the 1990 decade when the US banking system suffered a fully hidden collapse. It has not recovered, and will not. The financial crisis of 2008 was simply a visible event on the same sequence. Other international agencies have delayed implementation of bank rules. See the Market Watch article (CLICK HERE). One is left to wonder if the Basel Boyz are at war now with the USFed for defiance. The Basel lords in my view wish to collapse the entire system and impose global fascism. Perhaps the timing is not right. Sheer conjecture here.

◄$$$ THE THREAT OF A US-BANK RUN COULD BE IMMINENT, SINCE THE EXPANDED F.D.I.C. DEPOSIT INSURANCE ENDS DECEMBER 31ST. THREATS TO THE SYSTEM ABOUND AS THE NATIONAL ATTENTION IS FOCUSED ON THE USGOVT FISCAL CLIFF, THE VAST STORM DAMAGE TO THE NORTHEAST, AND THE CONCLUDED PRESIDENTIAL ELECTION. THESE THREE EVENTS COULD TRIGGER A SUDDEN DEPARTURE OF FUNDS IN ACCOUNTS. IF THE USDEPT TREASURY FOLLOWS THE EUROPEAN SAFE HAVEN EXAMPLE, THEY MIGHT OFFER NEGATIVE YIELDS ON SHORT-TERM USTBILLS. THAT WOULD CAPTURE A LOT OF BAD ATTENTION. $$$

With the media fixated on the USGovt debt with the fanciful fiscal cliff, few seem to be noticing the fact that the expanded 100% FDIC coverage for insured deposits ends January 1st. That is a mere 44 days away. Other major distractions are the massive hurricane and flood damage, primarily located in New Jersey and New York. The re-election of Obama is yet another distraction. All three events could serve as powerful motives for people to remove funds from banks in fear of general risk, in addition to the removed FDIC full insurance coverage. People will require their funds. Other people will fear the USGovt need for cash could possibly result in bank problems. Regardless, the risk of a bank run within the US banking system should be recognized, possibly not in acute fashion but a notable risk nonetheless.

The US banks hold $1.6 trillion in deposits, of which 85-90% are in the form of deposits within the insolvent money center banks, mostly located in New York. As of January 2013, the FDIC will halt the generous 100% coverage for insured deposits. The insurance will revert back to $250,000 per depositor account as before. The sudden effect will cause many large depositors to flee from the insecurity of the much reduced FDIC coverage, at a time when other banking risks appear on the rise. Some astute analysts expect the departing depositor funds will seeks out the safety of short-term USTreasury Bills, even though they offer paltry yields. A possibility exists for the USDept Treasury, in order to handle this flood of money, could offer negative interest rates. The move would not be isolated, since such financing would resemble the 0.5% negative interest rate offered by the Swiss and German Govts on the funds flooding to their banks from Spain, Greece, and Italy. Money has become like refugees crossing borders, seeking safety, not finding food. What occurs in the United States could result in a bank run much larger than what the Euro banks are seeing in a grand flight to safety. See the Silver Doctors article (CLICK HERE).

◄$$$ RESERVE BANK OF AUSTRALIA IS SUSPECTED OF PRINTING AUSSIE DOLLARS. THEY TRIED TO COVER THEIR TRACKS WITH FOREX TRADES AND FOREIGN ACCOUNT SHUFFLING AFTER HEAVY INTERVENTIONS. SOME DECEPTION IS EVIDENT. $$$

The Reserve Bank of Australia (RBA) might be printing money. Desperation will do that. The RBA could be printing heaps of Aussie Dollars, so claim UBS analysts. A close scrutiny of the central bank balance sheet indicates regular interventions in the foreign exchange market. Here are the clues. The level of deposits of overseas institutions held at the RBA rose in the three months to end October 2012. These are custodial accounts, which appear to be abused to conceal the activity. Some surmise that the RBA is printing Australian Dollars and selling them to overseas central banks for foreign currencies. It is a sleight of hand easily detected. Fortunately for the central bankers, most people are too ignorant to read financial statements. See the ABC News article (CLICK HERE).

Let's see. A central bank can print money for free, but they deny such activity. We shall call them liars. They must print because they can, and no prosecution will ever come. Heck, the USFed printed up $23 trillion and distributed it to a gaggle of their banker buddies across the world, so far with no legal consequence. Without legal enforcement, no prosecution, not even debate, the other central banks observe what is happening. They too print money. They find themselves in a corner, in need of money. So the Aussies print money and try to hide their tracks in the FOREX market with foreign accounts under their custody, like a mattress next door. A person with a new credit card, an unlimited balance, with no requirement to pay back the borrowed money for purchases, sure, that person will use it. To claim they never would take advantage goes contrary to human nature. Thanks to The Shamrock out of the New York options trading area for the story.

◄$$$ THE SWISS CENTRAL BANK HAS BEEN A BIG BUYER OF SOUTHERN EUROPEAN BONDS IN RECENT MONTHS. DESPERATION IS SETTING IN, AS THEY STRUGGLE TO MAINTAIN THE SWISS FRANC 120 PEG TO THE EURO CURRENCY. THE SWISS HAVE A MONUMENTAL PROBLEM IN PROCESSING THE INFLUX OF FUNDS SEEKING SAFE HAVEN IN THE YODEL HILLS. THEY MUST INVEST IN EURO-BASED SECURITIES, OR ELSE LOSE THEIR PURSUED PEG. EITHER THE PEG GOES AWAY, OR HIGHER RISK RESULTS ON CONVERSION OF TOXIC BONDS FROM THE SOUTHERN PERIPHERY TO CORE NATION DEBT. THE SWISS FRANC CURRENCY WILL EXPLODE HIGHER, ALL IN TIME. THE PEG CANNOT BE DEFENDED. $$$

The Swiss National Bank is driving down yields for EuroZone sovereign bonds. The Standard & Poors rating agency has raised attention to the plight of Switzerland, stuck between a currency rock and hard bond place. Largely unnoticed, the Swiss stubborn decision to stem the appreciation of the Swiss Franc has led to a vast recycling of funds, a management nightmare. They are selling off the peripheral debt from Southern Europe, in favor of the stable core nation debt securities. S&P published some estimated bond purchase data, noting how the Swiss National Bank (SNB) does not publish data on such activity. They estimate the SNB has bought around EUR 80 billion of sovereign bonds issued by the core EuroZone nations of Germany, France, the Netherlands, Finland, and Austria during the first seven months of 2012 alone. Put that figure into perspective. The Swiss purchase demand amounts to 48% of the combined full-year deficits estimated for the entire EuroZone core for the entire 2012 year, from the five named nations. Last year in 2011, the SNB purchased a mere 9% of the core nation debt securities. That is a 5-fold increase for seven months, compared to a full last year. The stronger demand has significantly contributed to the declining yields on bonds issued by the core sovereigns during 2012. Arbitrage is alive and well, even with the hyper-active Euro Central Bank at work bolstering the peripheral basket case bonds.

Deposit inflows originating in the EuroZone periphery are clearly being recycled through the Swiss National Bank into the more highly rated core Europe sovereign bonds. The bond yields are on a strong trend of decline for Germany, France, the Netherlands, Finland, and Austria. Since the onset of the global financial crisis, the dynamics of Switzerland's balance of payments have fundamentally changed. Instead of investing its large current account surpluses abroad via purchases of overseas assets, as in the past before the crisis, the Swiss private sector has been accumulating savings at home, motivated by distrust. Domestic demand is enormous, a new factor. At the same time, Swiss domestic banks have been reducing their securities tied to the EuroZone periphery. To complete the powerful effect, the Swiss are receiving large inflows of deposits from nervous foreign investors pursuing safe havens. The resulting Current Account surpluses has driven an unprecedented surge in the foreign exchange reserves held at the Swiss National Bank. Its volume has grown to 79% of domestic GDP in mid-2012, from a base 15% of Swiss GDP in mid-2008. See the Reuters article (CLICK HERE).

◄$$$ GROTESQUE BOND MARKET DISTORTIONS ARE REVEALED AS THE EUROZONE SOVEREIGN DEBT SHOWS EXTREME STRAIN. NEGATIVE SHORT-TERM YIELDS SHOW THAT MONEY IS SEEKING SAFE HAVEN IN VOLUMES THAT THE BOND MARKET CANNOT HANDLE. MONEY APPEARS LIKE REFUGEES IN OVERFLOWED SAFE HAVEN CAMPS. $$$

The London Siren adds for proof to the bond market flow of funds argument. The yield curve tells a story of extreme volume in movement, evident in the negative yields in German Bunds, and worse in Swiss Govt Bonds. It is amazing that the Swiss 10-year is only 0.40% in yield. Their savers are being punished with no reward. The Swiss short-term is more negative than the short-term Bund, the most visible sign of extreme stress.

◄$$$ THE BOSS OF THE LONDON WHALE HAS BEEN SUED BY JPMORGAN IN LONDON. IN A HORRENDOUS DECISION, THE GIANT BANK HAS DECIDED TO FILE LAWSUIT AGAINST MARTIN-ARTAJO. THE TRADING RISK WAS TAKEN UNDER THE URGING OF CEO DIMON HIMSELF. THE TRADES WERE BOUND TO LOSE BIG MONEY, SINCE HIGHLY RISKY AND TIED TO INTEREST RATE DERIVATIVES. THE LEVERAGED DAMAGE FROM PUBLICITY WILL ECLIPSE ANY RECOVERY OF FUNDS, AND MIGHT BRING SOME HARMFUL EXPOSURE TO INNER WORKINGS, SUCH AS THE CREATION OF A FALSE FLIGHT TO SAFETY IN A CONTRIVED USTBOND RALLY. $$$

JPMorgan Chase has filed lawsuit against the executive responsible for supervising Bruno Iksil, the trader nicknamed the London Whale. The case is: JP Morgan Chase & Co versus Javier Martin-Artajo, High Court of Justice, Queen's Bench Division, HQ12X04391. The once celebrated London Whale trader was a genius for moving the markets until the Interest Rate Swap leveraged buttresses began to fall on the JPMorgan chief investment office, resulting in a $6.2 billion trading loss. The division was under management by Javier Martin-Artajo. He is a defendant in a London lawsuit filed October 22nd in pure spite. Both Iksil and Martin-Artajo have left the bank. CEO Jamie Dimon called the losses a sign of egregious failures to manage flawed positions on synthetic credit securities. Perhaps the greater responsibility was on Dimon himself, who gave approval for the entire strategy of controlling the big markets of derivatives.

Dimon took credit as genius for the corporation during good times, but sued the office manager when losses occurred. He is a small man, a mole, a wart on a pig, and a superstar thief. The estimated size of the losses had risen through the first nine months of 2012, and might increase further. Iksil was allegedly urged to put higher values on his trades than they would have fetched on the open market. The defendant asserts no attempts were made to conceal the losses, which Dimon surely received regular briefings on. In its true vindictive manner, JPMorgan told the financial community that it intends to claw back the lucrative bonuses given to Iksil. The former Europe CIO head Achilles Macris was also responsible for overseeing the trades.

JPMorgan is facing regulatory scrutiny and criminal probes over the CIO group trading. It also must defend against US-based lawsuits from pension funds claiming losses of $52 million within the elite CIO shop. Here is where the duplicity comes. The CIO unit was pushed by Dimon to make bigger and riskier bets with bank assets in the years leading up to the losses, according to former departed employees. The botched bets spawned management changes and dismissals, as others were career victims. The Chief Investment Officer Ina Drew retired four days after the loss was disclosed on May 10th. Barry Zubrow had overseen the JPMorgan risk management function during the period. He will retire at the end of this year. See the Bloomberg article (CLICK HERE). Look for gradual exposure of the inner workings of the managed Interest Rate Swap contracts, which produced a phony flight to safety in USTreasury Bonds. The big loser might be JPMorgan, which is doubling down with an attendant risks of much worse harmful exposure that could put the USTBond market in very dubious light.

◄$$$ U.B.S. SEEKS TO CUT 10 THOUSAND JOBS IN THE SWISS BANKING SECTOR. THE BANK IS UNDER SIEGE FOLLOWING THE OUTSIZED SUBPRIME MORTGAGE LOSSES AND THE CURRENCY TRADING SCANDAL LAST YEAR. IN THAT TRADING FIASCO, U.B.S. FORFEITED ITS ENTIRE GOLD ACCOUNT, 100% OF IT. THE SEVERITY OF THE CORPORATE CUTBACKS IS CONSISTENT WITH THE JACKASS CLAIM THAT U.B.S. IS A RUINED DEAD BANK. $$$

The embattled Swiss bank UBS announced up to 10,000 eliminated jobs as it made deep cuts to its investment banking operations, more so its fixed income business. A radical restructuring is underway. Some observers regard a transformational change for UBS is in progress. More like an undertaker preparation of the embalming process. The plan appears to make cost cuts at the margin, to increase the capital ratios, and to return more capital to shareholders. The UBS cuts are piled atop the 50 to 60 thousand already executed in the financial sector. The domestic rival Credit Suisse also announced it was also making more cost cuts. A domino effect is expected, as further industry restructuring could come. The poor quarterly results prompted reaction with some accelerating plans.

A savvy eye noted that UBS is taking actions to return its investment banking to the historic core franchise under Warburg. In 1995, UBS bought SG Warburg, a British merchant bank. The UBS bank is a mess. It racked up $50 billion in subprime mortgage bond losses in 2008, prompting a Swiss government bailout. In early 2011, UBS was stung by a trading scandal that it lied about publicly. It lost its legs with huge VP-approved trading losses, blamed it on a rogue trader, ruined his career, which resulted in the bank forfeiting 100% of its gold bullion account. My solid gold trader source was part of the process that gutted UBS entirely, a witness with his own hands and eyes. He knows of the lies, the VP approvals, and the fully depleted gold account.

Watch the death process play out. The UBS work force was 63,520 in staff at end June. The massive cuts come on top of 3500 job losses announced last year. See the Fox Business article (CLICK HERE). To celebrate their funeral, the UBS bankers went to the pubs in London, after being turned away at the office. The action reeks of protecting harmful information that might be made public by angry disgruntled employees who know too much and might wish to deliver some evidence to an eager cub reporter, the incriminating type. See the UK Telegraph article (CLICK HERE). My contact in Zurich, an employee among their banks, pitched in with some comments. He said the cuts consist of 16% of the UBS work force. The fixed income staff was slashed. The job cuts are occurring across the entire industry in all major Swiss cities. He called it a disaster, with no job deemed safe. The implosion appears to have begun in the Swiss financial system. Perhaps when the implosion is farther along, the authorities will have an impossible time keeping the lid on the Allocated Gold account class action lawsuits. A well informed contact added some past perspective, with light shed on their history. UBS used to be a very small bank. But they were ambitious and without scruples. They were the only Swiss bank that would lower themselves to handle the nazi loot post in post-WW2 times. They built their business of stolen holocaust money, some dirty roots. May UBS collapse, but not before any innocent analysts and traders find new posts elsewhere. May they drag down the bigger Swiss bankers who stole allocated gold accounts.

Tyler Durden pitched in with a funeral speech. It was not a eulogy, since full disrespect was shown for the rotting corpse. He wrote, "There is down-sizing; there is trimming the fat; and then there is UBS. The once giant Swiss Bank just announced it will cut up to 10,000 jobs. This comes on top of the 3500 from last year, which makes a rather dramatic weight loss strategy for the 63,500 employee firm. As the Financial Times reports, they will not happen all at once, but will lead to the closure of a sizable part of the UBS fixed income trading operations (and other capital intensive areas of the investment bank). Perhaps in the understatement of the day: 'THERE WERE SEVERAL OPTIONS ON THE TABLE BUT UBS HAS DECIDED ON THE MOST RADICAL ONE,' a person familiar commented as the plan is hoped to reduce complexity and costs. So no more Bloomberg Terminals?" To be removed from the corporate offices will be the fixed income trading operations and other capital intensive areas of the investment bank. When capital is gone, certain business segments that depend upon capital base must depart. UBS is dead, my allegation for 18 months. See the Zero Hedge article (CLICK HERE).

◄$$$ THE BANK OF ENGLAND CAN BE SEEN USING DEVIOUS METHODS TO CONCEAL ITS DIRECT MONETIZATION OF UKGOVT DEBT. THEY ARE PROTECTING THE AAA DEBT RATING. CREDIBILITY AT THE B.O.E. IS ERODING FAST, AS ALL MAJOR CENTRAL BANKS ARE BOTH DECEPTIVE AND INFLATION MACHINES. $$$

Credit to the London Siren for an excellent insight into the devious workings of the Bank of England. He works in the fixed income arena inside the London belly of the beast. The following are his thoughts, with my edits. The UK AAA sovereign debt rating is under pressure. In order to alleviate the pressure in the short term, the BOE and the Treasury conducted a massive fudge. The BOE received coupon payments on UKGilts it holds, but transferred them back to the Treasury. This transfer was roughly equivalent to 1% of GDP and was meant to provide visible evidence that austerity was indeed working well, and that the debt/GDP ratio was on target. This is nonsensical accounting replete with deception. However, it demonstrates convincingly the practice a DIRECT monetization of debt by the Treasury. The implication from this action is that the BOE is no longer independent and is explicitly aiding and abetting fiscal policy in a reckless manner, which in fact reflects similar reckless action by the USFed and Euro Central Bank. The credibility of the BOE is lost. It has become a Weimar engine, just like the USFed and EuroCB.

In the continuing theme of bad UKGovt judgment, a quick update on its horrendous investment in corrupt broken banks. The Financial Times reported that the Public Accounts Committee (spending watchdog for Parliament) is not convinced that the government will be able to sell its stakes in the big rescued banks for the price it paid any time soon. In addition, the accounts committee report cites the 66 billion Pounds cash spent purchasing shares in RBS and Lloyds may never be recovered. The report comes just weeks after Jim O'Neil, CEO of UKFI (which controls the stakes in RBS and Lloyds) admitted that a sale was not imminent, and both firms remain in trouble. The cost of liquidation for the two firms would have been much less, but would have revealed massive bank corruption in the post-mortem.

◄$$$ LONDON FRETS ITS FUTURE AS FINANCIAL HUB WITHIN EUROPE. INSOLVENCY AND CORRUPTION COMBINE WITH A UKECONOMY IN DEEP DECLINE TO CREATE HORRENDOUS CONDITIONS FOR THE BIG CITY BANKS. BY STEPPING ASIDE FROM THE LONG SHADOW OF EUROPEAN BANK UNION, LONDON HAS RISKED SOME ISOLATION. IT WILL STILL BE A BIG BANKING CENTER, AS ETCHED IN THE THE PAST 500 YEARS OF HISTORY. CHANGES WILL COME TO THE FOREX MARKET ACTIVITY, DIRECT E.S.M. FUND BAILOUTS, AND LONDON INFLUENCE ON BANKING RULES. THE EUROPEAN FINANCIAL CORE IS PULLING TOGETHER EVEN AS IT IMPLODES. $$$

London might not remain the premier bank center in the world much longer. The City has risked some isolation as a result of its boycott of the European Bank Union power play. The European Central Bank will become the main regulator for the biggest banks in the 17-nation EuroZone as early as January 1st, the first step toward creating a banking union. So the LIBOR scandal is followed by EU bank separation. Britain's voice in setting the agenda will be muted as the EuroCB gains new powers. The United Kingdom wishes to avoid the deep responsibility to fund failed banks in Spain, Italy, and France. Deputy Prime Minister Nick Clegg put it clearly in October, when he stated that Britain should stay outside because the plan for the bank union is designed to address the vicious circle between sovereign debt and banks in those countries. Furthermore, trading in Euro currency could shift to Frankfurt or Paris and be regulated by the EuroCB. Such is the claim of Thomas Huertas, the former UK member on the European Banking Authority, now working at Ernst & Young. That function is currently centered in London. Big changes come to London.

London remains a giant in banking, with no equal. But expect a move toward more decentralization as Europe implodes. The strengths are many. London boasts of the world's biggest center for FOREX trading, cross-border bank lending, and interest rate derivati ves. The City has 251 foreign banks and more international firms than any other financial center including New York or Frankfurt. The City is home to 75% of the FOREX trading done by European Union firms, including 42% of all Euro currency trades. Banks located in London conduct 62% of trading in Euro-based OTC interest rate derivatives. A European banking union that gives the EuroCB new supervisory powers will create an inner core, which will remove London from decisions as well as Southern Europe, where the rot is worst. The union will be less sensitive to the concerns of London precisely when the Southern Europe sovereign bond losses pile up, with London banks sitting as creditors. Next comes a serious undermine of the single market, which might actually be good, but less efficient. The function of the European Stability Mechanism is likely also to become altered. A central supervisory authority could permit the ESM bailout fund to hold EUR 500 billion for directly recapitalization of firms, removing the link between sovereigns and their lenders. See the Bloomberg article (CLICK HERE). London is slowly separating from Europe, precisely when the LIBOR bank scandal has caused distrust and rival attacks continue.

◄$$$ BAILOUTS ARE GOING TOWARD MONEY LAUNDERING EFFORTS. CYPRUS IS A PRIMARY HAVEN FOR THE EUROPEAN DIRTY MONEY. ACROSS THE ATLANTIC, NEW YORK CITY IS THE BOLDER HAVEN FOR DIRTY MONEY. HOWEVER, CYPRUS HAS A NEW DISTINCTION IN PARKING OTHER ILL-GOTTEN MONEY OBTAINED FROM EUROPEAN BAILOUTS. $$$

A sizeable portion of bank and bond bailouts is finding its way to Cyprus. The world is being robbed, nothing new about that. The main difference is that the dirty money is not going entirely to London and New York, but rather to tiny Cyprus. A report prepared by the German intelligence agency Bundesnachrichtendienst (BND) on money laundering in Cyprus has laid out the details and data. Their flagship journal Spiegel reported that the BND discovered Russian oligarchs, individual entrepreneurs, and mafiosi have profited most from the hundreds of billions in European taxpayer funds. They have parked their illegal earnings for the most part in Cyprus. See the InCyprus article (CLICK HERE) and the Investment Watchdog article (CLICK HERE). The United Nations will be busy updating their money laundering reports published in 2009 and 2010, in which they identify the New York money center banks as being the dirtiest in the world for processing narcotics funds. The biggest violations will always be with New York and London banks.

## JAPAN SEES BAD MOON RISING

◄$$$ THE JAPANESE ECONOMY IS AT GRAND RISK. NO LONG-TERM BENEFIT FROM ANY TSUNAMI OR NUKE PLANT RECONSTRUCTION ARRIVED, ONLY BURDEN WITH HEADWINDS. JAPAN FACES RISK OF IMPLOSION. THE JAPANESE ECONOMY SHRANK THE MOST SINCE THE 2011 NATURAL DISASTER. THE CONTRACTION ADDS PRESSURE ON THE NODA ADMIN AND THE CENTRAL BANK. THIS IS NOT THE TIME TO IMPOSE A HIGHER SALES TAX. TWO DECADES OF MONETARY EASING HAVE SOLVED NOTHING. JAPAN IS SINKING. $$$

The Japanese miracle is coming to an end, victim of a combination of the Chinese ascendance and the rotten global economy, together with the earthquake, tsunami, and nuke plant devastation. The Japanese have been outsourcing a significant portion of their production to China. At the same time, the demand from Western economies has fallen off. In 3Q2012, the Japanese Economy declined as exports tumbled and consumer spending slumped. The Tokyo leaders responded the way they usually have done for over 20 years. They leaned on their central bank to add stimulus, in the form of more bond monetization. Unlike in the US, where economic statistics are doctored to absurd levels, Japan tells the tough story. Their Gross Domestic Product fell in Q3 by an annualized 3.5%, the most since the earthquake and tsunami struck in early 2011. On a quarterly sequential basis, the economy shrank 0.9% in the July to September period.

Shipments to Asia, Europe, and the United States all went into reverse, along with capital spending. As Japan faces the risk of its third officially recognized recession since 2008, the effect dampens plans by Prime Minister Yoshihiko Noda to implement its national first sales tax increase in more than a decade. At the same time, a political stalemate has occurred, leaving the government with empty cash barrels. The clash with China has finally shown a negative impact. Exports to China have been undermined by anti-Japanese sentiment, following the Noda Admin purchase of islands under disputed ownership. At risk is a group of islands, along with off-shore oil & gas rights.

Private consumption across Japan posted the first quarterly back-to-back decline since the six months through March 2009. The government subsidies for fuel efficient cars has been curtailed. Capital investment dropped 3.2%, the steepest decline since 2Q2009, a horrible indicator for the near future. The Japanese Govt debt is the highest in the world, on a debt ratio to GDP basis. The recent legislation passed in August to increase the sales tax to 8% in April 2014, and then to 10% in 2015, comes precisely when the economy is faltering. Expect an acceleration in the decline, especially if the sales tax is imposed. An adjustment is in progress for the Jap Govt Bond, which actively discounts a tax rise in 2014. The JGBond market could quickly become destabilized. The buyer of last resort is again the Bank of Japan, which expanded its asset purchase program for the second time in two months on October 30th. Their QE is permanent and large. The BOJ under Governor Masaaki Shirakawa is fast becoming a travesty clown show. They announce yet another new QE program every few months, trapped in the ZIRP (zero percent interest rate policy) monetary corner for 22 years. The United States is learning about the same 0% corner, stuck on monetary policy precisely as the Jackass forecasted in May 2009. But the US plight is much worse than Japan's, since its trade gap has two decades of punch from capital hemmorhage. The US is a shell of an industrial economy by comparison.

The Bank of Japan is extremely concerned about the USFed and its renewed amplified QE bond purchase program. It will work to weaken the USDollar, thus rendering harm to Japanese industry. The American monetary expansion risks pushing up the Yen exchange rate. In the crossfire lies the armada of powerful Japanese industrial firms and their keiretsus (conglomerates). A higher Yen currency would conspire to make Japanese exports less competitive since more costly in the global marketplace. Japanese companies have been badly hurt by the worsening economy. Bloomberg data shows an aggregate 31% decline in net income for 191 companies listed on the Nikkei 225 Stock Average which reported earnings last week for the completed third quarter. That is 85% of their leading firms. Panic is setting in.

Corporate losses are impressive and never seen before, causing shock and dismay. Sharp Corp and Panasonic Corp expect to lose a combined 1.2 trillion yen (=US$15 billion) this fiscal year. Hitachi Construction Machinery and Nissan Motor cut their full year profit forecasts. Several other big firms outside of the industrial sector are in trouble, some on the ropes. Machinery orders, an indicator of capital spending, fell the most in four months in September, while industrial production fell by 10%, the most since the earthquake slammed the export trade. Net exports, equal to shipments less imports, subtracted 0.7% from GDP on a quarterly basis, the largest decline in three quarters. Public investment rose 4% in the period, the third quarter of growth. The GDP deflator, a measure of price changes across the economy, fell 0.7% last quarter from the same period of 2011. See the Bloomberg article (CLICK HERE).

◄$$$ THE JAPANESE MIRACLE HAS TURNED TO NIGHTMARE, AS THE TRADE SURPLUS IS GONE (ANOTHER CORRECT JACKASS FORECAST). THE TRADE DEFICIT IS BIG AND GROWING RAPIDLY, MADE WORSE BY THE CHINESE TENSIONS. THE JAPANESE CAPITAL POOL IS AT RISK, BEING USURPED BY THE GROWING DEFICIT. $$$

Two features permitted Japan to internalize over 30 years of reckless failed fiscal (govt debt) and monetary policy (bond purchases) and to offset the relentless deflationary downward spiral. A) Its demographics coupled with an investing culture that favors deposits and bonds over equities, which resulted in massive government bond investments. B) Its trade surplus which led to positive foreign capital flows. Both demographic and trade factors have suddenly gone into reverse. The nation of Japan has reached its demographic limit. Evidence confirms the net sale of pension funds, as in selling JGBonds to meet redemption needs. Worse, to find yield income, they are being enticed (forced) into risky assets in order to generate a return at any cost. So the demand with funds in hand has gone away, and dumb risk is being adopted. They are repeating the US errors of chasing yield in mortgage bonds. Losses are dead ahead.

The Fukishima earthquake and tsunami surely wrecked havoc. The reconstruction was touted as potentially positive, but the nuke plants are still not stable, a story suppressed. Following the harmful effects of Chinese tension, the Japanese trade surplus status in recent weeks has turned into a sea of red ink. It has gone into deficit, and rapidly so. Like their American counterparts, the only source of capital left is BOJ monetization of the most acidic kind. A footnote reads that the central bank has failed in all eight iterations of Quantitative Easing. No recovery happened. USA take note. Unfortunately for Japan, the nation already sports a national debt equal to 220% of GDP. The over-arching risk has turned much more dangerous and ominous, a potential for rising interest rates. Even the smallest increase in prevailing interest rates would result in the entire Japanese house of cards toppling. They have been geared to the 0% lunacy for over two decades. The longer the timespan geared to artificial free money low rates, the more sweeping and deep the damage if rates were to rise. In Japan a bad moon is rising.

The Asian juggernaut is in trouble. The nation's export trade sector is not languishing, but rather enduring a remarkable collapse. In one year's time, the world will see something more obvious off kilter in Japan. The entire Asian export trade sector is in trouble also. Call it the toxic mix of the political fallout with China and regional Asian weakness. The former seems crazy exaggerated, the latter from Western demand in decline. Check out the similar duress evident in Singapore, with annual industrial production estimated at 2.5%, and note Thailand manufacturing output off 13.7% annually, and observe the Philippines whose exports are down by 9% annually. The leader Japan, with the third largest economy in the world, has been brought to its knees. A record trade deficit of close to JPY 1 trillion (=US$12.2 bn) in Japan was registered last month in September. At risk is the viability of the capital pool from a powerful restriction. It is being gobbled up by the deficit. The trade deficit is growing, having moved from a $6 billion per month range held over the last year to twice that level in the most recent month. See the Zero Hedge article (CLICK HERE).

◄$$$ JAPAN HAS RECORDED A CURRENT ACCOUNT SURPLUS ATOP A TRADE DEFICIT. THE INVESTMENTS MUST HAVE BEEN ENORMOUS. ASIAN RESERVES FROM SEVERAL COUNTRIES ARE HUNKERING INTO THE JAPANESE GOVT BONDS, SINCE THEY SHUN THE USTREASURY BONDS. THE ASIANS RECOGNIZE THE TOXIC MONETARY CLIMATE WITHIN THE UNITED STATES FROM THE ENTRENCHED BOND MONETIZATION CANCER. $$$

Japan posted a Current Account surplus of JPY 503.6 billion (=US$6.14 bn) in September, according to its Ministry of Finance. Two points worthy of note. The trade deficit has been ovecome by regional Asian investment, which seeks to find safe haven, but moves away from USTBonds regarded as increasingly toxic. Secondly, The Current Account surplus is trending down from a year ago. Although the C/A surplus is up slightly from the JPY 454.7 billion logged in August, the headline C/A figure was down 68.7% from a year ago. See the INO news article (CLICK HERE).

## FRANCE & SPAIN REACH CRITICAL PHASE

◄$$$ EUROZONE CRISIS HAS THREE FULL YEARS OF PAIN, AND NOTHING SOLVED. THE FIASCO IN FRANCE MOVES ALONG FULL SPEED, WITH THE IMPLOSION ACCELERATING. THE FRENCH PROPERTY MARKET WILL LEAD THE PATH DOWN LIKE A GIANT MILLSTONE, RENDERING CALAMITOUS DAMAGE TO THE BIG BANKS. IT SHOULD PROVIDE A FORWARD GLIMPSE OF THE AMERICAN DISASTER AS IT LURCHES INTO SOCIALISM IN FULL EMBRACED GLORY. A SHRINKING ECONOMY, HIGHER TAXES, AND WIDER BENEFITS OFFERS A PLAIN PRESCRIPTION FOR RUIN. FRANCE WILL SERVE AS A SHOWCASE NATION OF FAILURE. IT WILL JOIN THE WRECKED P.I.I.G.S. NATIONS. $$$

Scanning the world comparatively, France ranks near the top in government transfers to households, near the top in vacation times, and near the top in labor market inflexibility. It ranks near the bottom in hours worked per week and labor force participation rates. They permit the youngest retirement age in Europe. Being the worker utopia is costly. Its welfare state stands head & shoulders above the rest in cost to maintain. A quick look at several key indicators shows the decline in almost all categories since Hollande took office to deliver the final socialist elixir. It is not a solution, but rather a national dose of hemlock. Notice PMI (manufacturing index), business confidence, export growth, and job seekers (reversed) presented on melded scales. The profound national decline is exactly what the Jackass forecasted several months ago. In France, absolutely nothing fixed, resolved, or properly addressed, nothing, but that is what socialism is all about. Solve nothing, share the pain evenly. Handouts, welfare, guarantees, the good life for everyone, such promises being what France lacks the wealth to provide. See the UK Guardian article (CLICK HERE).

A French-born subscriber living in New York City recently returned from France. He has demonstrated a sharp mind over the several years of loyal subscription, during email exchanges. He shared some observations of value. The following are his thoughts, with minor edits. Two key impressions stuck from the trip. Gold controls are in place on sales. It is now illegal to transact for purchases of Gold or Silver in cash. Sales are only permitted with credit cards, which enables the French Govt to track the transactions. People are responding easily by making the short trip to Belgium, where the black market is florishing. In many locations, the same language is shared. Secondly, the French banks are ruined, in dreadful condition. They are the largest holders of Greek debt. Moreover, the real estate bubble has busted, the market head down fast. Some analysts expect a complete and utter massacre. It has started and nothing can stop it. No transactions are taking place, the property market locked and falling, stuck frozen without bids. The worst damage is in city center Paris and metropolitan Paris, which contains 20% of the nation's population. Metro Paris is also the richest part of the country. The damage coming to the balance sheet of their entire collection of banks will be huge. By the next time he makes the trip to Paris, the devastation will be stark and emphatic by easy comparison.

◄$$$ STANDARD & POORS DOWNGRADED THE FRENCH BANKS AGAIN. THE PROCESS WILL HAPPEN LIKE AN ENDLESS CASCADE. AS THE SOUTHERN EUROPE PERIPHERY GOES INTO THE TOILET, SO GOES THE BIG FRENCH BANKS. THEY SERVE AS A PRIMARY LENDER TO SEVERAL NATIONS, FAR MORE AMBITIOUS IN CREDIT EXTENSION THAN THEIR MODERATE WEALTH AS A NATION SHOULD PERMIT. $$$

Credit rating agency Standard & Poors cut its ratings on BNP Paribas and two other major French banks. The impetus again is rising economic risks. The downgrade also cut the ratings for Banque Solfea and Cofidis. The official statement read, "We see [these banks] as more exposed to this more difficult European environment. In our view, the economic risks under which French banks operate are increasing, leaving them moderately more exposed to the potential of a more protracted recession in the EuroZone." Expect further debt downgrades to hit the French banking system in coming months like a flurry of severe kicks to the gut and face to a man already on the ground. The consequence is felt immediately with investment funds like pensions which are forbidden to invest unless of investment grade. The S&P agency changed the outlook on 11 other major banks to negative from stable, leaving the door open for future downgrades sooner rather than later. That group with reduced outlook included Societe Generale, Credit Agricole, and Allianz Banque. The first two are flagship giants along with BNP Paribas, already downgraded. As these three banks, so goes the French banking system.

France is facing an economy in sudden freeze, facing imminent decline. It is the second largest economy in the European Union behind Germany. Although in better shape than Spain or Italy, its equally sized neighbors, France stands out since it serves as a major creditor for the entire Southern Europe periphery. Thus it is badly weighed down. The big French banks are lined up for staggering losses yet to be realized, but unavoidable. The Euro Central Bank under Draghi is doing a delicate balancing act that appears more like a shell game of scaled worthless toxic paper to replace older standard toxic paper in exotic hokus pokus manner. The French GDP is unchanged since 3Q2011. Many nations in Europe are now mired in recession. In addition, the French unemployment rate in August was 10.6%, only slightly better than the 11.4% rate across the EuroZone.

Many people believe Europe needs a banking union. The global and European banking system is interwoven. Problems encountered in Spain, Italy, and Greece can affect the outlook for banks in other countries, expecially France and London (their major creditors). In mid-October, the European leaders agreed to a EU-wide banking supervisor to begin work in 2013. A new turkey leader czar is not needed. They must liquidate the insolvent banks and clean out the rot, like done in Spain. It is a highly disruptive but urgently necessary process. For the same reason as in the United States, this will not be permitted to happen. The banker elite does not want to suffer losses. They wish instead to continue to receive multi-$billion welfare in the form of rosy bond redemptions and direct handouts. They do not wish to shed power during a vast liquidation. See the CNN Money News article (CLICK HERE).

◄$$$ SPAIN HAS CREATED THE BAD BANK FINALLY, AS REALITY STRIKES HARD. THE FINANCIAL GARBAGE CAN HAS BEEN CREATED. FOR ALMOST FIVE YEARS RUNNING, THE SPANISH BANKING SYSTEM HAS NOT PROPERLY CONDUCTED ACCOUNTING FOR THE PROPERTY MARKET. FINALLY, IT COMES AND AN FLOOD OF RED INK FLOWS. A CASE OF SYSTEMIC SHOCK IS NEXT WHICH THREATENS TO CAUSE SYSTEMIC FAILURE FOR THE NATION. $$$

The Spanish Bad Bank emerges, and two impressions are clear. The national real estate market in all of Spain is an absolute disaster, an order of magnitude worse than perceived. The accounting delays have created a travesty, extended since 2005 as a norm in practice. The nation took Extend & Pretend on bank asset markings to obscene heights in a global spectacle easily observed and publicized, with outcome foreseen. They have devised a public garbage can where the rules and spin are loaded with pure delusion. It is almost a comedy worthy of laughter. The Bad Bank enables the broad application in bank asset writedowns. The delusion has many sides. The Spanish Govt actually believes the process can be orderly. They believe the Bad Bank will not produce losses to the public account. They believe it will operate under a goal of profitability. They believe buyers will appear in the liquidation. Their break from reality could be judged psychotic. The cleanup will be brutal, as seen in the planned haircuts, the loose term meant to describe the declared asset loss to the creditor (banks). The price guidelines for liquidation are the result of some market activity.

The Spanish Govt expects even with massive discounts, the property will move in the liquidation arena. The initial results and indications are not promising. The de-leveraging process has gone NO BID so far. The discount on property loans is set for 46% in writedowns. The discount for foreclosed assets is set for 63% in writedowns. The discount for land is set between 56% and 80% incredibly. The investor reaction from the banks in line to suffer the writedown losses will come soon, expected to be filled with shock and grim faces. Expect some public outcry, but such is the consequence of at least six years of accounting delays bordering on criminal to the investors. What comes would have been much less severe but perhaps manageable and orderly if done four or five years ago. But delays in bank accounting will result in a catastrophe several times worse than what would have occurred in controlled liquidations, say in 2007 or 2008 or 2009. It will next be several times worse, enough to cause a systemic free lockup from the powerful shock. Refer to shock to the financial structure, businesses, and the people, with certain chaos and disorder.

Prepare for book value on bank portfolios to come way down. The following graph indicates the minimum writedowns for a host of property assets, derived from auction activity. Up to the listed percentages, no bid is seen on the given Spanish assets. In other words, nobody will bid on Foreclosed Land at even an 80% haircut, and the fair value of New Housing is at 46% of book value. The condition of Spanish real estate is an absolute catastrophe, the final reckoning that the Jackass described in 2005 and 2006 and every year afterwards. The writedowns might be worse than expected by this analyst, who is not known to put forward a timid forecast. The longer the delay, the bigger the writedowns, as reality strikes. The Bad Bank implicit haircuts have confirmed the utter calamity. The nation will enter a depression and possibly a systemic failure situation from the prevalent shock. Haircut details as per the below table:

The reader should be clear on the strategy attempted, or at least planned. The leadership crew in Spain wants its banks to default on its assets, without actually going through the default process, have the discounted liability be transferred to a third party, and then not have this third party's debt be counted against the debt of the country. Witness Alice in Wonderland where all the masters are Cheshire Cats, but rabbit holes are everywhere. A comparable analogy would see someone defaulting on a mortgage, keeping the house, no loss marked on personal accounts, with the default not counting against their credit rating. The full boat is a massive load. Spain is in possession of EUR 180 billion in bad loans, a figure that rises every month. Even a blended 50% haircut writedown applied to the assorted national property stock will not cover the existing collection of bad loans, expected to grow and surpass EUR 200 billion. The figure will soar much higher, since other properties will come forward to enter the meat grinder of reality. Also, since the EU economy is caught in quicksand, future losses will come as the market continues in decline, dragged down by a broken sovereign bond market.

The current Bad Bank iteration attempt will in time be deemed inadequate as a concept, since badly flawed in its rules and guidelines for proceeding. Usually the entire concept is a cowardly attempt to sidestep the reality of bank writedowns, or to saddle the losses with an imaginary national uncle, or both. If Spain only had its own Fannie Mae!! Watch the gratuitous timeline and its upcoming extensions for the final break from reality. Spain will become Greece five times larger in a tragic comedy, enough to capture global attention and scare the hell out the entire Western world. It will be seen as a future glimpse for other nations in need of resolution. The United States is Spain times 20 or 30, since the derivatives amplify the destruction during liquidation. See the Zero Hedge article (CLICK HERE). A footnote, that the Spanish elite do not seem prominent enough to stop the process. Their power base will wash away. For some reason, the Latin culture does not lock in power through the big banks. Spain will provide a window to the entire Western world on how wealth has been an illusion for decades, since the monetary system divorced itself from Gold.

◄$$$ BANKSIA HAS BEEN SENT TO RECEIVERSHIP IN THE SPANISH BANKING SYSTEM, JUST MONTHS AFTER BEING BAILED OUT, AND ONE MONTH AFTER BEING GIVEN A QUASI CLEAN BILL OF HEALTH. THE FARCE CONTINUES WITH A MAIN ACT. $$$

Auditors gave Banksia Securities a tailored clean bill of health less than four weeks before its collapse in the last week of October. Legions of investors are stuck in limbo, unclear of the value of EUR 660 million in investments, as the financial firm fell into receivership. Amazingly, on September 27th, accountants signed off on accounts that found no significant changes in the state of affairs during the year, in their words. Either they are incompetent, ordered to falsify, or paid off in bribes. The company's 2012 full year accounts by the chartered accountants Richmond Sinnott & Delahunty in Bendigo stated, "No matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the company." What a relief! Three weeks ago, reality struck. The receivers McGrath Nicol were called in to manage the mess and sort out the garbage. Spain once again finds itself on stage amidst a jeering crowd. See the SMH article (CLICK HERE).

◄$$$ A SWEEPING DUTCH DEBT DOWNGRADE ON THEIR BANKS SERVES AS A REMINDER THAT THE EUROPEAN CORE HAS SOME CRITICAL WEAKNESS ALONG WITH THE SOUTHERN PERIPHERY. IMPLICATIONS WILL COME IN FORM OF MORE COLLATERAL TO POST FOR BANKS, FINANCIAL FIRMS, AND INDIVIDUALS. IN ADDITION TO THE ECONOMY, THE DUTCH HOUSING MARKET WAS CITED FOR ITS PROLONGED CORRECTION. $$$

Standard & Poors downgraded a group of Dutch banks, due to economic downturn risk and continued housing market prolonged correction. They cited wider EuroZone risk as well. The Dutch property bubble has not received much attention, which has some similarities to the US subprime flaws. S&P lowered by one notch the ratings on ABN AMRO Bank, Rabobank Nederland, van Lanschot Bankiers, and the SNS REAAL group. The outlook on the SNS REAAL group is reduced to negative, while the outlook on the other firms is stable. They revised the outlook on ING Bank, ING Groep, and Achmea Hypotheekbank to negative. They placed on CreditWatch negative the long-term ratings on Bank Nederlandse Gemeenten, KAS Bank, and Nederlandse Waterschapsbank. The impact of higher economic risks will be reviewed. They maintain the ratings on NIBC Bank as negative.

In their statement, Standard & Poors wrote, "Furthermore, we consider that the prolonged housing market slump, elevated household leverage, and measures to reduce the budget deficit are constraining consumer confidence and private sector activity in general. We anticipate that the impact of these constraints could lead to moderately higher impairment charges among Dutch banks over the next two years." The implications are clear. Notice that budget reduction (often poison pills) is mentioned as a risk, implying even steps toward solutions are harmful. The Dutch Govt debt AAA rating could come under pressure, which is already on negative outlook by Moodys and S&P. The Euro currency takes one more small but notable step toward implosion. As always, the downgrades mean more margin posting and need for more collateral by investors.

◄$$$ BRITISH CONCERN GROWS OVER AN EXIT FROM THE EURO COMMON CURRENCY. THE NATION COULD RESORT TO A REFERENDUM ON DEPARTURE FROM THE ECONOMIC BLOC ENTIRELY. THE TABLES HAVE TURNED IN THE LAST 70 YEARS, VIS-A-VIS FASCISM, NAZISM, AND CAPITALISM. FORMER NAZI GERMANY LOOKS EAST WHILE NEO-NAZI BRITAIN CONSIDERS ISOLATION. A TWO-TIERED EUROPE THREATENS TO REMOVE LONDON FROM ITS DOMINANT POSITION IN FINANCE. $$$

The nations of Europe are engaged in pronouncements of national pride as the continent continues to implode. The leaders of Germany, France, and Italy spoke of their pride, but in Great Britain a strange silence prevailed. In the balance is a potential referendum on Britain's relations with the European Union. A news source reported recently that a senior cabinet minister wants Britain to threaten openly to leave the 27-nation economic bloc. There was no official denial of the report, which means it might have some validity. Britain could be laying plans for what political and financial pundits have dubbed Brixit, a variant on Grexit, used to refer to the Greek departure from the EuroZone. The single economic and free trade market of Europe accounts for half of the British foreign trade and investment. The nation has always been ambivalent about the European project.

Unlike the founding six nations of the European Union, Britain was a victor in World War II alongside the United States, while all six EU nations were either defeated or occupied. The tables have turned, as the Allies (US & UK) have been converted into nazi nations dominated by ruthless Syndicates linked fatally to the security agencies in the Jackass opinion, not stated humbly but rather with full conviction and a slight contempt. Personal threats with curt commentary confirm the validity of this viewpoint. Britain once stood alone in Europe against fascism, but now finds itself a nazi nation led by corrupt devious bankers, separating itself from the Europeans. The capitalism core is formed way east of Europe in Russia and China, organized in commerce by Germany in a major twist, a paradigm shift. The former nazis of Germany migrated to London and New York to plant roots that blossomed in the last two decades. The New Germany looks east to organize, establish, and fortify the next chapter for the financial world platform with Gold playing a key role. What irony! The aspect unchanged is that nazis operate with paper money but steal the gold.

The emergence of a more distinct two-tier Europe is putting great strain on Europe's unified economic sphere. The deep integration among the 17-nation EuroZone on issues like banking and financial services could ultimately threaten London's status as the European financial capital. Sebastian Dullien summarized well the situation for the European Council on Foreign Relations. He wrote, "Deeper integration in the core would come with disintegration in the EU's periphery and shrink the single market." In other words, integration could undermine the one part of the European bargain that Britons actually seem to like, the dominance of London in finance. See the New York Times article (CLICK HERE). The stamp of finality to the descendence of London could be validated by the removal of its gold, a process that accelerated this spring and summer. Its gold has been delivered to the East in gigantic volume. With the gold goes power for the next chapter. Britain will become a bit player. The United States will become a ravaged violent land with a fusion of marxism and nazism, unless a radical turn is engineered.

◄$$$ SPAIN IS ANGRY, SAD, BEWILDERED, FRUSTRATED, DISPIRITED, AND BROKE. A RECENT NATIONWIDE DEMONSTRATION SHOWED SOLIDARITY, BUT NO SOLUTIONS. SHOWN ARE MILLIONS IN SEVERAL CITIES TAKING TO THE STREETS. SO FAR THEY ARE ORDERLY. LATER THEY WILL NOT BE ORDERLY, AS A DESTRUCTIVE PHASE WILL BE UNLEASHED, LIKE IN GREECE. FRANCE AND ITALY WILL FOLLOW THE SPANISH LEAD IN THIS DANCE. $$$

## THANKS

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