MACRO ANALYSIS REPORT
ECONOMICS, CENTRAL BANK POLICY
BANKS, BONDS, GEOPOLITICS

* Miscellaneous Morsels
* Broken USFed & QE2 Cancer
* Big Banks Under Fire
* Housing Crippled Permanently
* The Infected USEconomy
* Third World Realities


HAT TRICK LETTER
Issue #80
Jim Willie CB, 
“the Golden Jackass”
14 November 2010

"The ultimate cost of chronic monetary inflation is economic ruin, citzen poverty, lost national sovereignty, followed by slavery to foreigners and an open door to carpetbaggers. The USFed cannot solve all the nation's financial problems, but it sure does cause or aggravate most of them." ~ the Jackass

"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved." ~ Ludwig Von Mises (we are heading toward the latter outcome)

"To be fair, there are more than a few economists who think that [QE2] will produce no economic result at all. However, most pundits see only the supposedly good effects of the inflation that all of this double entry accounting is intended to produce. A CNBC talking head, for one, averred that if the Fed buys $600 billion of US debt, it will produce a wealth effect three times as large, or $1.8 trillion. We could digress by rolling on the ground, convulsed with laughter, upon hearing that this gargantuan Ponzi Scheme is evidently thought by some to create wealth." ~ Rick Ackerman (on the standard American insanity on wealth)

"Once again, I will get on my soapbox and shout from the top of my lungs that buying USTreasurys is a Ponzi scheme that will all come crashing down on you, when the Fed removes their stimulus. Sure it will not be now, or in the next 6 months, but this Treasury Bubble will pop one day. When it does, the mass exodus to the exit door will be so jammed, that everyone will get hurt." ~ Chuck Butler of Everbank

"By signalling its intention to purchase another $600 billion of longer-term Treasury securities by the end of June 2011, the Fed hopes its injections of cash will lower interest rates, bolster asset prices, increase wealth, and encourage households and companies to spend and hire. While willing to act, the Fed is acutely aware that the potential benefits come with the certainty of collateral damage, and the likelihood of adverse unintended consequences." ~ Mohamed El-Erian

[Editor Note: In the past few years and especially the last several months, the reports for the Hat Trick Letter have been very long. The crisis has developed multiple sides, as the breakdown has had many chambers to report. Nobody could accuse the Jackass of ignoring specific aspects of the financial and systemic march to ruin. The Crisis Coverage Report began in October 2008 in response to the crisis climax, but the report will end here. The blossomed crisis has become woven into the entire economic and currency fabric, where CRISIS IS THE NEW NORM. My preference is to report less on the extremely dangerous criminally oriented news items, for personal security reasons. In the last six weeks, a new phase of the crisis breakdown has been entered. Gold & Silver have begun a release process from control. The big banks are cornered for both insolvency and criminal fraud. The USDollar is under siege. The out of control US Federal Reserve is fast losing credibility globally. The USTreasury Bond bubble is working its way toward a climax peak. Foreign sovereign debt is under relentless attack, while budget deficits remain staggering huge. The monetary system is sinking under the extreme weight of debt and unstable bond backbone. The historical account has been laid out adequately for its crisis germination. Best wishes to all, toward survival using the precious metals lifeline. Tie your future to true money in Gold & Silver, which will vault toward at least $3000 and $100 per ounce in price. They will probably surpass both of those price targets. Be patient and do not sell early.]

MISCELLANEOUS MORSELS

◄$$$ MAJOR VICTIMS IN THE CURRENT CRISIS ARE TRUTH AND JUSTICE. AS THE FASCIST BUSINESS MODEL BLOSSOMED, CORRUPTION BECAME THE SANCTIONED NORM, FULLY PERMITTED AND TOTALLY PROTECTED FOR THE LARGE CORPORATIONS. $$$

Paul Craig Roberts has served well as a herald of truth in corrupt government and banking. He made a great summary remark that caught my eye once again. He said, "Today Americans are ruled by propaganda. Americans have little regard for truth, little access to it, and little ability to recognize it. Truth is an unwelcome entity. It is disturbing. It is off limits. Those who speak it run the risk of being branded anti-American, anti-Semite, or Conspiracy Theorist. Truth is an inconvenience for government and for the interest groups whose campaign contributions control government. Truth is an inconvenience for prosecutors who want convictions, not the discovery of innocence or guilt." In the last several years, especially since the 9/11 bloody coup to take control of the USGovt and USMilitary, power politics ran roughshod over law. Patriots have been turned into accused native terrorists. Financial fraud became a standard business practice. Financial markets came under greater control. Airports have become centers for invasive mugging. The nation has lost its way. The battle to wrest control in the name of the people will make for a very difficult clash of power versus the little person aided only by law, an uphill struggle.

◄$$$ A DEEP DIVISION HAS BEGUN TO SHOW BETWEEN THE USFED OWNERS AND WALL STREET BANKERS. THE DIVISION HAS BEGUN TO SHOW, AS A GLIMPSE WAS GRANTED TO THE JEKYLL ISLAND CONFERENCE WHERE BERNANKE WAS SCOLDED AND EMBARRASSED. $$$

One hundred years ago, the meeting at Jekyll Island of major bankers will live in infamy. They conspired to form the US Federal Reserve and to corrupt forever American finance. The rest of the elitism, pilfered wealth, extreme power merchant dealings, contribution to warmongering, and ruin of the United States is history. Several key banker figures met to celebrate the anniversary, and to lament the current situation replete with crisis. Alan Greenspan stuck out, as he admitted deep powerful FRAUD. He implied that the Wall Street banks robbed the nation. His unspoken message was that the Wall Street banks left the USFed as bagholder of $1.5 trillion in toxic bonds linked to the mortgage debacle. The assets are mostly worthless, rendering the USFed balance sheet perhaps over $1.0 to $1.2 trillion in the red, powerful losses that might be impossible to recover from. In my view, the USFed is wrecked beyond repair, since the housing market is will worsen and rot further. In a rather stunning admission on Jekyll Island on the weekend of November 6th and 7th, Alan Greenspan outed the criminal syndicate activity. What he proclaimed in quietly stated words is that the mistakes in the regulatory agencies, and the mistakes by the banks in making loans, and the mistakes made by Wall Street firms when packaging securities and selling mortgage bonds to investors, THESE MISTAKES WERE REALLY LARGE SCALE FINANCIAL FRAUD. Greenspan did not mince words. He stated that "The United States needs greater enforcement of criminal statutes against fraud. In fact, fraud creates great instability in competitive markets. It causes great distrust between counter-parties. It just does not work." See the Market Ticker video clip (CLICK HERE).

As the housing prices fall further under the weight of gigantic bank owned properties held on the balance sheet as a secondary supply bloat, the USFed will sink into oblivion. The Jekyll Island meeting reveals a new rift. The supra-national banker elites might be preparing USFed Chairman Bernanke as the whipping boy, the fall guy, and person on whose watch the banking system failed. Bernanke tried to defend himself, but his was a lone voice not credible among powerful bankers in attendance. The duplicity of Greenspan is ripe, since he presided over a couple of full asset bubble and credit cycles himself, including the formation for the current housing & mortgage bubble foundation until February 2006. Bernanke inherited these twin deadly asset bubbles carefully constructed on his watch. Bernanke was called by the Jackass to become the appointed bagholder when he took the chairman post in February 2006.

◄$$$ CORPORATE INSIDER STOCK SALES WENT FROM RIDICULOUSLY TILTED TOWARD SELLS TO MULTIPLES WORSE. TRADITIONALLY, TILTED SELLS HAVE TIPPED OFF A COMING BEAR MARKET. THEY KNOW WHAT IS COMING, AND IT IS MAJOR DECLINE IN BUSINESS PROFITABILITY. INVESTORS ARE NOT STUPID, AND HAVE PUSHED THE 26TH STRAIGHT WEEK OF HEAVY FUND OUTFLOWS. $$$

Insider selling hit an all-time record of $4.5 billion in the first week of November. In fact, no other week in prior  history had more than $2 billion in net selling. The insiders are evacuating on market positions. It marked the biggest weekly number ever recorded by tracking company InsiderScore.com, over twice the previous record!! Stock sales in S&P companies alone saw a staggering $2.8 billion, more than four times the week before. Reporting on the sell/buy ratio is astronomical. See the Zero Hedge article (CLICK HERE). A special congratulations goes to Cisco Systems executives, who dumped 6,620,750 shares in the last six months, equal to 60% of their holdings. On Thursday, they issued a warning about much slower growth, profit margin pressures, and big future challenges. The company is looking for more favorable USGovt tax laws, that would enable them to more easily return a huge amount of foreign held cash. Substantial foreign expansion, well subsidized by tax breaks, has been their investment theme for years, as has been for Google and Apple Computer. See the Global Economic Analysis article (CLICK HERE).

Domestic US mutual funds suffered the 26th sequential week of outflows. The ICI data for the week ended October 27th registered a $2.9 billion outflow in neverending manner, bringing the total to $84 billion. The hot potatoes being juggled from high frequency trading will be a challenging task on display. Watch the farce of the General Motors secondary stock issuance. Watch the big US bank stock sales too, since they must cover their foreclosure fraud costs. See the Zero Hedge article (CLICK HERE). Outflows are shown in red bars, and S&P500 stock index in solid black line.

◄$$$ JANITORS WITH DOCTORAL OR PROFESSIONAL DEGREES ARE RISING IN RANKS. BIG QUESTIONS COME FOR THE WISDOM OF ATTENDING COLLEGE IN THE UNITED STATES, OR MORE SPECIFICALLY BEYOND THE FOUR COLLEGE YEARS. THE MURRAY THEORY HAS COME TO THE FOREFRONT, IMPLYING THAT COLLEGE IS NOT SOMETHING THAT ALL PEOPLE SHOULD PURSUE, NOR CAN BENEFIT FROM DUE TO LEARNING ABILITY LIMITATIONS. THE BIGGER CLOUD IN MY VIEW IS THAT COLLEGE ATTENDANCE WILL FALL SHARPLY AS THE NATION FALLS INTO THE THIRD WORLD. $$$


The United States has the best educated restaurant waiting staff in the world, along with the best trained janitors. Over 8000 waiters and waitresses have doctoral or professional degrees. Over 80,000 bartenders and over 18,000 parking lot attendants have college degrees. Here is the eye-popper. There are 5057 janitors in the US with a PhD doctorate degree, or professional degree. In total, the Bureau of Labor Statistics estimates that 17 million Americans with college degrees are doing jobs that require little or no higher education. In an environment where the USGovt runs chronic $1.3 trillion deficits, when states face face huge unfunded liabilities, when corporations find little justification to make business investments or to hire, and when households are fighting for survival against foreclosure with rampant negative equity, major questions have suddenly arisen concerning commitments to finance and subsidize increasingly problematic educational programs for students whose academic record is one of mediocrity, and whose prospects of vocational and career success is limited.

The Charles Murray thesis claims that an increasing number of people attending college do not have the cognitive abilities or study habits requisite for success at centers of higher education. As a result, college degrees have been devalued while course programs have been dumbed down. What is needed is not more college graduates but rather more highly skilled graduates in math & science, so that the US can compete globally and lead in patent discoveries like two decades ago. The nation must produce better quality, nor higher quantity.

An extraordinary and controversial new study was posted on the website of the most prestigious National Bureau of Economic Research. They produced  a research report entitled "Estimating Marginal Returns to Education." The authors concluded, "In general, marginal and average returns to college are not the same. Some marginal expansions of schooling produce gains that are well below average returns, in general agreement with the analysis of Charles Murray." Translated, they claim an investment in higher education yields a likely good 10% rate of return. Additional education adds to existing investments with heavy student debts and unlikely payoff. Also, inadequate learning skills limit the potential gains from going to college, or going beyond the standard four years of college. The authors were Pedro Carneiro, James Heckman, and Edward Vytlacil. See the Chronicle of Higher Education article (CLICK HERE). The bigger mega-trend issue is that college attendance will fall as the United States slides deeper into the Third World. And worse, many colleges and universities will be forced to shut down due to strained finances, depleted endowments, lost research contracts, unkept facilities, and lower student enrollment. A paradigm shift comes.

◄$$$ SYNDICATE SCIENCE. THE LIST OF SUSPICIOUS, DEADLY, DEVIOUS STORIES LACED WITH INTRIGUE AT THE NATIONAL LEVEL IS ALARMING. THEY HAVE SHAPED THE NATION. THE MICHIGAN BANKER MURDER CASE WITH ITS IRREGULARITIES, IS THE LATEST IN A STRING. $$$

It reads like a horror story, except that it is the heart & soul of the US History. JFKennedy was shot dead in Dallas after the CIA pulled Secret Service guards one block before the gunfire. President Kennedy had re-started the Silver Certificates, against heavy objection by Wall Street bankers. He also claimed the CIA was a cancer upon humanity. One fired CIA head sat on the Warren Commission. President Reagan was shot before the first year was finished, with Papa Bush as VP, a man Reagan described was the last man on earth he would select for VP running mate. Call 1981 the beginning of the Narcotics Presidency. The Clinton Admin solicited the aid of Goldman Sachs to manage the USDept Treasury, the first time active gaming of the US ministries was perpetrated. Eight years later, Fort Knox was empty of its gold, the victim of obscene gold leasing at nearly 0%, using leveraged carry trade conducted between gold and the USTreasurys. That Decade of Prosperity was stolen, leaving the USDollar without collateral, but with a gigantic growing debt. The Pentagon documented over $2 trillion in defense appropriation fraud and missing funds. Defense Secy Rumsfeld gave a press conference on the pilferage the day before 9/11. Replaced Treasury Secy John Snow served his purpose until 2006, bringing his expertise in transporation and port access to the syndicate, culminating in the Dubai Ports World scandal. His accomplishments improved narcotics and arms trafficking.

Wall Street banks continued the housing and mortgage bubble after the first couple years by targeting minority groups, approving home loans to people without income, colluding with the debt rating agencies, prescribing appraisal values, and misrepresenting risk to bond investors, even while taking opposite positions with credit default contracts. They created an illicit title registry system, and funded mortgage streams with a vehicle that evaded income tax. The courts will be clogged for years with lawsuits. In the spring 2008, the CFO of Freddie Mac committed suicide with aid in his living room. He knew too much but wanted to resign. Fannie Mae & Freddie Mac have acted as the principal clearing house for several $trillion fraud schemes run within the USGovt. The Housing & Urban Development had suffered two decades of looting by past presidents and Wall Street in complicity, ripping off almost $2 trillion, fully documented. Last year, the FBI caught a Goldman Sachs employee who escaped with the insider trading UNIX box and its valuable software. The Russian hero who stole it was given an arrest warrant rather than a medal of honor. The event and the surrounding news was covered up by the FBI.

The Jackass wrote about 9/11 being a prime example of Nazi tactics used broadly, the Coup d'Etat carried out by key USGovt agencies, a wing of the USMilitary, Wall Street bankers, and a key ally in the Middle East. The result was two immediate threats of a bullet to the back of my head by the security agency hitmen for the small nation that looks northwest across the Mediterranean to Italy. A list of taboo topics quickly formed, as the Rise of the Fourth Reich was not to be encumbered. Airline passage has restricted carrying water bottles onboard, a favorite method of transporting diamonds, often used to make narcotics payments. Gordon Brown ran for Prime Minister in England in 2007 on a platform of exiting the Iraq War, and pulling out the British troops. But he was threatened openly by President Bush and Secy State Condaleeza Rice. Three months later, an Al-Qaeda attack of Scotland Yard took place on their front steps. The event was forecasted by the Jackass months in advance to private friends, expectant of an Al-Q attack somewhere in London to bring Brown into line. The USCongress passed the Patriot Act right after the 9/11 attack, under threat of Anthrax in Congressional ventilation systems. Rumors persisted months later that the threats came from a middle level FBI office.

Matt Simmons died in a hot tub in August 2010, after explaining that the Gulf of Mexico had two massive leaks, initially in a USMilitary weapons dump site, and another later at the BP Deepwater Horizon oil rig with plenty of suspicious activity by Halliburton. Just two weeks earlier, Christopher Story was murdered in London, the reporter who chose to follow the narotics trails of the Bush family. It is time to wake up. The latest minor incident, shrouded with suspicion, is the death of a Michigan banker. The irregularities abound, but the investigation went nowhere. The above sequence of events, without any perfect order, represents a small fraction of deeply distrubing events that worked to change the course of US history and shape the current fascist regime. The catastrophe with syndicate fingerprints will forever change the nation. The biggest victims are the American people, their liberties, and the discarded trampled Constitution. Most USGovt agencies support the narcotics wing of the syndicate, including the Drug Enforcement Agency and Coast Guard. The USMilitary might save the day, but doing so would require actions to forgive, imprison, bribe, or remove Clinton, Rubin, the Bushes, Dimon, and Paulson as syndicate captains.

BROKEN USFED & QE2 CANCER

◄$$$ THE QE2 LAUNCH HAS REVEALED A DESPERATE USFED EMBROILED IN FAILED POLICY AND INEPT ANALYSIS, PRESIDING OVER A FAILED MONETARY SYSTEM. BERNANKE LOOKS LOST, EXHAUSTED, AND FRIGHTENED. BANKERS FACE A CHOICE: DISGRACE, RUIN, PROSECUTION, EXILE, OR JUMPING LIKE IN 1932. ALTHOUGH DOWNPLAYED, THE QE2 INITIATIVE WILL NOT BE MUTED AT ALL. IT WILL BE DONE WITH FULL BLAST, WHOSE ESSENCE WILL BE RAMPANT INFLATION, WHILE BOLD LIES ARE TOLD TO FOREIGN CREDITORS. $$$

Have no pity for the mega-bankers who rely upon deception, confusion, mis-education, hidden theft of savings, and arrogant preaching, as they practice inflation engineering and bring ruin to the USEconomy, its financial structure, its wealth engines, thus producing pervasive poverty and widespread despair. They also use tactical murders to cover the pathways. For example see the Freddie Mac CFO David Kellerman, and the former financial chief of Dutch bank ABN Amro, Huibert Boumeester. Both were murders reported as suicides. For every murder in the news, figure that ten stories were kept quiet. The victims sometimes are those who wish to go public, come clean, and leave the cabal. The victims typically are those who know too much and have too little influence or protection. The nation is in tatters, and the bankers with economist high priests at their side, are responsible for much ruin. Some blame is due to the people who remain ignorant of money, clueless about economics, and apathetic to challenge the bankers. May the mega-bankers face justice and a cold splash of water from harsh reality of their failed reign. If they choose, let them jump or seek exile. Once again, Paraguay will be available for flight just like after World War II. To be sure, many will seek the Mediterranean coast south of Europe.

 

The entire financial crisis followed creation of a credit bubble fueled by the USFed, the USCongress, and the Pentagon, traced back to 1971 when the Vietnam War costs helped to force the Nixon decision to abandon the gold standard. Instead of forfeiting gold, Nixon exited the gold standard. The United States departed from the Bretton Woods II accord. The USFed actively prevented a fast rise in interest rates in the last few years. The USTreasury Bonds are under control via Interest Rate Swaps, and free abuse permitted to JPMorgan. The end result has been chronic distortion and ruin of the price of money, the usury cost. Instead, the nation has been taught that liquidity is good but inflation is bad, when they are one in the same. Regulatory bodies turned into Wall Street harlots. Fannie Mae turned into a vast clearing house of bond fraud and a presidential field of theft. The credit derivatives held the system together in hidden ugly ways. Then came the rotten rancid fruit of multi $billion bailouts to save the nation from the system's architects of destruction, who remain in power. Any simple economic analysis shows the galloping debt was unsustainable and the succession of asset bubbles littered the road to ruin. The financial engineering devices turned against the system, with all its leverage heaping grand destruction like black acid rain. The nation is badly insolvent, and lacks legitimate income sources, something economists fail to grasp.

The recent chapter has been dominated by calls to take writedown credit losses, to rein in bank leverage, to shed unproductive investments, but the process was interrupted by the sacrosanct mantra of preserving the banks too big to fail. That is precisely where the bankruptcy is located, where the decisions at the helm were made, and where the responsibility lies. The main goal of policy makers has been to restart the credit process, with the unspoken dream of reflating asset prices again. They pursue a resumption of an asset driven economy devoted to consumption. Little understanding or desire exists to restructure the US financial system. Instead, the USFed will turn to more powerful monetary inflation as the supposed cure, and propagate a cancer globally. The grand backfire comes next year in the form of strong price inflation, but they will label is economic growth falsely.

It is amazing that first, the leaders pursue the seemingly desperate theme of a return to normal, and second, they consistently choose monetary inflation over debt restructure. The United States lost its potential return path to normal in 1998, actually a decade earlier on Black Monday 1987. After 1987, a commitment was clearly made to produce a sequence of asset bubbles as wealth engines, discarding factories in favor of financial engineering. A crucial turning point came in the 1996 speech about Irrational Exuberance by then USFed Chairman Alan Greenspan. He endorsed the new plan, a directive. Before, the central banks had expanded the money supply according to economic growth. From that point onward, the central bank instead grew the money supply as long as the CPI showed no price inflation. The USGovt mavens made certain the CPI never did, and the Wall Street crooks made sure that the message was made repeatedly until believed. The rest is history. The September 2008 death of the US financial sector was the epitaph.

The TARP & TALF & QE1 & QE2 and numerous alphabet soup USFed liquidity facilities (monetary inflation secondary pipelines) are extraordinary reckless desperate attempts to revive a corpse in the morgue by pumping blood in its body with USCongress stimulus of electric shock to the cardiac center. The heart stopped functioning long ago. The TARP Fund bill was passed under threat by Treasury Secy Paulson of imposed martial law, while Fannie Mae was expanded in Black Hole covered costs, used as a vast back door for additional Wall Street bailouts. In the midst of the bizarre efforts to revive the dead US Financial sector, the Wall Street fraud kings ply their trade, loot the USGovt till, spin propaganda, redeem their worthless assets, channel to Fannie Mae, enjoy legal protection from the syndicate that controls the USGovt. The monetary inflation agenda and curriculum, assure the destruction of what is left of the USEconomy from hyper-inflation that begins with food & energy.

◄$$$ PURE PONZI PRINCIPLES WILL RESUME IN ROUND #2. THE BERNANKE FED IS READY TO RESUME THE BIGGEST MONETIZATION SCHEME IN MODERN HISTORY WITH A INITIAL PARLAY OF $105 BILLION. HE CLAIMS THE UPCOMING RISE IN THE COST STRUCTURE WILL PRODUCE WEALTH AND ELIMINATE THE DEFLATION RISK. HE CONFOUNDS (CONFUSES) INFLATION AND GROWTH. THE USFED BELIEVES RISING ENERGY COSTS WILL BE GOOD FOR THE USECONOMY, AS A BENEFICIAL STIMULUS. BERNANKE & HIS CLAN ARE HERETICAL FOOLS BENT ON DESTRUCTION. $$$

Bill Gross of PIMCO has come out with a surprsing criticism of Bernanke and the QE1/QE2 debt monetization schemes. He calls them an order of magnitude greater than the famed example by Charles Ponzi himself. He wrote, "Now, however, with growth in doubt, it seems that the Fed has taken Charles Ponzi one step further. Instead of simply paying for maturing debt with receipts from financial sector creditors, banks, insurance companies, surplus reserve nations, and investment managers, to name the most significant, the Fed has joined the party itself. Rather than orchestrating the game from on high, it has jumped into the pond with the other swimmers. One and a half $trillion in checks were written in 2009, and $trillions more lie ahead. The Fed, in effect, is telling the markets not to worry about our fiscal deficits. It will be the buyer of first and perhaps last resort. There is no need, as with Charles Ponzi, to find an increasing amount of future gullibles. They will just write the check themselves. I ask you: Has there ever been a Ponzi scheme so brazen? There has not." Sharp words with a biting edge from a bond expert working at arm's length with the USGovt. See the Zero Hedge article (CLICK HERE). Few know that Madoff Ponzi scheme worked within the USDept Treasury and Bank of England. He was an expendable pawn in a bigger game, after he crossed the Boyz somehow, some violation of rules of engagement. Most of the Madoff money is hidden in Israeli banks, but in Swiss branch locations.

The infamous Permanent Open Market Opeations (POMO) will proceed with gusto packed by steroids. The schedule has been announced for $105 billion in 18 monetizations through December 9th. The long-term USTreasury yields will surely fall, despite silly theories aired about a rise in rates from new supply and worry over USGovt solvency. Phony money to produce gigantic demand overwhelms actual supply. Pressure will be taken off the Primary Dealers who are obligated to purchase. Let the USFed frontrunning begin, with PIMCO the champion for profit on such trends, with both USTreasury and USAgency Bonds.

Ben Bernanke through stupidity and bankrupt thought believes that hyper-inflation will be a good thing for the USEconomy. The Bernanke Fed released a research report written by an Economics PhD named Martin Bodenstein in September, entitled "Oil Shocks & the Zero Bound on Nominal Interest Rates." Spiffy title, stupid content. The argument was made that oil price shocks from crude oil price surges are beneficial to GDP and stimulative to parts of the economy sensitive to interest rates. They fully plan to call upcoming price inflation incorrectly as economic growth. Indirectly it is acknowledged that a surge in oil prices to over $100 will be for the greater good, a jump-start to the USEconomy. The USFed charlatans and heretics are deeply involved in voodoo gimmickry and open insanity. Sean Corrigan of Diapason is harshly critical in rebuke rebuttal. He wrote, "[The Fed] actually welcomes the current surge in the prices of many of the staples of everyday life, that it actually exults in the drain being exerted on family budgets. It revels in the squeeze on profit margins being suffered by already struggling small businesses, because it imagines this will serve to lower the reckoning of the ethereal construct of a generalized, future real interest rate and that this alone will serve to shower riches upon all who are presently suffering, in comparison for the present woes." See the Zero Hedge article (CLICK HERE).

◄$$$ DOUG NOLAND WARNED ABOUT EXTREME QE2 RISKS. THE ENTIRE CLIMATE IS DIFFERENT FROM QE1. BEFOREHAND, A RETREAT IN LIQUIDITY AND MARKETS WAS EVIDENT. FOR QE2, THE RISKS HERE ARE FOR GREATER INFLATION, WORSE STABILITY, AND EXTREME MONETARY DISORDER. FORMER B.I.S. ADVISOR WILLIAM WHITE WARNED THE ENTIRE WORLD IS ON VERGE OF A GRAND BOND BUST DISASTER. FORMER REAGAN PLAYER DAVID STOCKMAN CALLED THE QE2 PROGRAM A HEROIN INJECTION. $$$

Since the August admission via hints of the QE2 Launch, the financial market impact has been strong and pronounced. Doug Noland of the Prudent Bear summarized, "From August lows, the S&P500 has gained almost 18%, the S&P400 Mid-Caps 21%, and the small cap Russell 2000 25%. Notably, many global market prices have enjoyed even more robust inflation. Gold is up 19% and silver has surged 50%. The Shanghai Composite has rallied 22%. India's Sensex index rose 18% to a record high. Copper is up 23% from August lows. Cotton has surged 80%, sugar 82%, and corn 46%. The Goldman Sachs Commodities index has gained 21% from mid-August lows." These are the cost inflation effects, without anything remotely visible on the income side to manage or support the higher costs. Noland points out the unrelenting onslaught of financial inflows and heightened inflationary pressures, due directly to faltering USDollar confidence and strengthening bubble dynamics. Emerging economy credit systems must contend with overheating, while key developed economies are locked into a perilous cycle of massive government debt expansion. Bubbles run uncontrolled and undisciplined by markets badly distorted by liquidity overabundance. The USFed, however, is not alone in its excesses. A Bloomberg tally identifies global central bank international reserve positions have inflated $1.5 trillion over the past 12 months. This data confirms the Competing Currency War side effect, in a race to the bottom from debasement and devaluation. Foreign central banks feel compelled to match the USFed or else suffer great currency appreciation. The currencies are all devaluing versus gold & silver, which are true money.

Noland believe something worse than price inflation stands as a risk. He wrote, "The greatest risk is a destabilizing crisis of confidence in our nation's debt obligations. Our system doubled total mortgage debt in just over six years during the mortgage and Wall Street finance bubble. Washington is now on track to double the federal debt load in just over four years. The Federal Reserve policy remains instrumental in accommodating a precarious Credit Bubble at the heart of our monetary system." He refers indirectly to a rising risk of USGovt and Fannie Mae debt default. He believes the Bernanke Fed is playing with fire in a different environment from 18 months ago. QE1 was implemented in an environment of de-leveraging, impaired global financial systems, and acute economic contraction, when the USDollar benefited from the response in general outflows from global markets and from US$-denominated contract liquidations. QE1 had a stabilizing influence, as it worked to accommodate financial sector de-leveraging. In sharp contrast, the current environment seems the opposite. The QE2 backdrop is altogether different. Global markets these days must react to robust inflationary biases, prompting policy changes in China and Brazil for instance. The embrace of risk is back and speculation is widespread. The Emerging Economies are on the receiving end of massive financial flow, the so-called hot money from investments hedged against the USDollar. Meanwhile, the USDollar has been enduring powerful and publicized declines that have triggered alarm.

The QE2 initiative will surely aggravate the unmanageable financial flows and unstable global markets. The Asian economies and those where commodity exports dominate must contend with destablizing financial flows, the fuel of asset bubbles. Noland warns that the new global financial flows, monetary inflation, and growth dynamics will result in higher US stock prices, but a powerful squeeze in the USEconomy from higher food and energy prices. In direct contrast to contradict the USFed obligation to promote employment and price stability, the upcoming QE2 initiative and monetary policy will "have minimal impact on both US employment and growth, while providing a major impetus for additional global Monetary Disorder. A strong case can be made that QE2 will only worsen already unprecedented global imbalances. Global policymakers must be at their wits end." See the Safe Haven article (CLICK HERE). My forecast is in synch with Noland's, except the big squeeze is across the board on commodities, including industrial metals and cotton.

William White served an economic adviser to the Bank of  Intl Settlements, with previous experience at the Bank of Canada. White calls the bond market a bubble, whose bust could lead to disastrous consequences. The massive infusion of credit (his words) accompanies the dramatic rise in newly printed money. He said, "It manifests itself in the sharp rise of asset prices in large developing economies, which could potentially become another bubble that will burst with disastrous consequences for the global economy." He believes the global economy is in a dangerous position since the major industrialized nation currencies have fallen so hard. He is one of the few prestigious bankers to correctly predict the onset of the financial crisis years ago. See the Zero Hedge article (CLICK HERE). Major currencies have been over-valued for two decades. Demand for their debt has reversed, thus reducing their exchange rates.

Even David Stockman accuses the USFed of injecting high grade monetary heroin into the global financial system. He served as director of the Office of Mgmt & Budget under in the Reagan Admin. He said, "Today the Fed is scared to death that the boys & girls & robots on Wall Street are going to have a hissy fit. And therefore these programs, one after another, are simply designed to somehow pacify the stock market, hoping to keep the stock indexes going up. Somehow that will fool the people into thinking they are wealthier and they will spend money. The people are not buying that. Main Street is not stupid enough to believe that engineered rallies as a result of QE2 stimulus are making them wealth ier. The Fed is telling a lot of lies to the market. It is telling all the politicians on Capitol Hill you can issue unlimited debt cause it does not cost anything. We have $9 trillion of marketable debt. Upwards of 70% of that has maturities of 5 years or less, down to 90 days. All of those maturities are 1% down to 10 basis points. So from the point of view of Congress, the cost of carrying the debt is essentially free. When you tell politicians they can issue $100 billion of debt a month for free, how do you expect them to do the right thing, and ask their constituents to sacrifice? I think the Fed is injecting high grade monetary heroin into the financial system of the world, and one of these days it is going to kill the patient." Hey Stockman, it already has!!

◄$$$ RICKARDS WARNS THE USFED MIGHT GO BANKRUPT. IT IS ALREADY WELL OVER $500 BILLION INSOLVENT. THE USFED IS IN THE PROCESS OF DESTROYING THE USTREASURY MARKET, WHICH RAGES AS AN ASSET BUBBLE. THEY HAVE DIFFICULT CHOICES TO MAKE, BUT WILL CHOOSE THE UNLEASH OF PRICE INFLATION RATHER THAN THEIR OWN DEATH. $$$

Jim Rickards of Omnis believes the USFed is slowly going bankrupt. He offered a synopsis, saying "Right now the Fed balance sheet shows about $57 billion in total capital. Current assets are about $2.3 trillion. The current money printing plan will take total assets above $3 trillion. At that level, it only takes a 2% decline in asset values to wipe out the Fed capital. Put differently, it only takes a 2% drop in the average value of assets on the Fed balance sheet for the Fed to go bankrupt. And this is in an environment where various markets frequently go up and down 3% in a single day." My view is that Rickards is generous in his assessment, since $1.4 trillion of USFed assets in mortgage bonds and leveraged concoctions probably have already fallen by $600 to $800 billion in value, bought at lofty prices as subsidies to the big US banks. The foreclosure scandal has revealed questionable value of mortgage bonds, given the tenuous (if not imaginary) link to monthly home loan payment income streams, the MERS title database lack of legal standing, and the REMIC tax evasion fundamental channel. The USFed in early 2010 spoke incessantly about an Exit Strategy, to move away from 0% rates and heavy debt monetization. The Jackass contradicted them, saying no Exit Strategy was available, and the followup QE2 round was due next. The absence of an Exit Strategy is painfully obvious. It should have been clear months ago when bank insolvency was clumsily covered up, when bank lending was not occurring, when the housing prices were not recovering, when outsized USGovt deficits were ongoing, and when USTreasury auctions benefitted from monetization. Rickards argues forcefully, logically, and indisputably that the USFed Quantitative Easing Round #2 cannot possibly work, and therefore is a scam. See the King World interview (CLICK HERE).

Rickards made several key excellent significant salient points:

  • The Fed is leading the United States to ruin in ways that are claimed to be well intentioned and benign when viewed in isolation, but which take us finally into a locked room with no exit. QE is just a euphemism for what is really going on, hyper monetary inflation. When they want to reduce the money supply, they do the opposite.
  • The Fed is coming to resemble a highly leveraged hedge fund with an inverted pyramid of risky, volatile, and junk debt balanced on a slim layer of capital. It owns the Maiden Lane portfolio of junk from Bear Stearns and $1.4 trillion of mortgages whose value is in serious doubt because of strategic defaults, lost notes, and halted foreclosures. The USFed is taking credit risk and market risk on its balance sheet in unprecedented amounts.
  • With the USFed composing such a large part of the USTreasury market, liquidity will decrease as fewer participants buy and sell each day due to the central bank's dominant role. Hence the bid/offer spreads will widen considerably, making it very costly for the USFed to unload their position later on. They are destroying the USTreasury market.
  • When critics raise the issue of mark-to-market losses, the USFed claims simply that they will hold to maturity, that they do not have to mark to market. They own some of the junkier assets and mortgages that will not pay off, ever. The leveraged CDO mortgage related bonds they hold are worthless and dead.
  • This outsized money printing runs the risk of resulting in price inflation at best, and maybe hyper-inflation if velocity takes off due to behavioral shifts. The USFed promises at the first signs of sustained and rising inflation, they will reverse course and reduce the money supply by selling bonds and nip inflation in the bud. Doing so would occur in a world of rising inflation and rising interest rates. The losses would be profound on the bond sales. The Fed believes they have the finesse to sell shorter maturities and thus reduce money supply, while holding onto longer maturities. But that further degrades the quality of the USFed balance sheet and turns it into a one-way roach motel for highly volatile and junk assets.
  • A conclusion comes on money printing, known as QE. If price inflation takes off, the USFed will have to choose between holding bonds and letting inflation get worse, versus selling bonds and going bankrupt in the process. They will not go down without a fight. The USFed will naturally hold the bonds and let price inflation zoom higher. Do not ask about the Exit Strategy from QE, since there is no exit (as the Jackass has stated loudly for several months).

Price inflation has already entered the system with input costs from commodities. Either the USEconomy collapses from lack of profit and lack of discretionary household cash, or else price inflation hits end products and services. A gigantic squeeze is coming to the USEconomy, AND to the USFed balance sheet. While the USEconomy deteriorates further, the USFed will be killed by QE2. The stage is being set for either the resignation of the USFed from its contract role with the USCongress due to catastrophic losses, or a USTreasury default, or both. No exit means dead end!!

◄$$$ A BOLD FORECAST STATES THAT SIGNS OF HYPER-INFLATION WILL APPEAR IN MID-2011, WITH A USDOLLAR PANIC OCCURRING IN 2012. GONZALO LIRA MAKES A LOT OF SENSE. HE MAKES A LOGICAL BUT HARSH SEQUENCE OF FORECASTS. THEY SEEM VERY CREDIBLE AND LIKELY. MY VIEW IS THAT THE JOBLESS RATE WILL RISE IN LOCKSTEP WITH PRICE INFLATION, SO THAT BUSINESS DESTRUCTION WILL ACCOMPANY THE WRECKED PRICE STRUCTURES. THE INFLATIONARY DEPRESSION WILL UNFOLD, WITH CLIMAX EVENT THE USTREASURY BOND DEFAULT. $$$

Gonzalo Lira has made some serious splash with highly charged analysis and very specific directed criticisms of the US monetary policy. Lira has laid out his forecast for the USEconomic breakdown, led by extreme price inflation, followed by complete inability to stop the growing catastrophe. His work is excellent, although the Jackass objects to his profanity since a high road of decorum is preferred. Here is his scenario to unfold. When the official low-ball Consumer Price Inflation index reaches 5% by the winter of 2011 (in the next three months), the pundits and economists and the USFed and the Obama Admin will proclaim success and satisfaction that the USEconomy is back on track and people are spending again. The 0% official rate and the QE2 program will be proclaimed a successful high risk strategy that paid off. By late spring and early summer of 2011, the people will awaken to a harsh reality, that price inflation is raging in the full glory of its destruction. The consensus will gather mass in the comprehension that the USFed will be unwilling to raise interest rates so as to quell inflation. Later, the consensus will form that the USFed cannot raise rates. Doing so would wreck the USTreasury market, wreck the housing market, and invite a series of credit derivative explosions centered upon Interest Rate Swaps. The USEconomy at the same time will be too weak, and the USGovt deficits will be too enormous and unwieldy. The USFed will be compelled to permit the rising inflation rate to go unaddressed without any preventive monetary response action. They will try hard to explain it away as a sign of a recovering USEconomy. They must permit price inflation, so they will misinterpret it intentionally. In this respect, Lira and the Jackass are in full agreement.

Then comes the Great Awakening of the USFed for its colossal wreckage in the wake of busted asset bubbles. They will realize that the rising CPI is not a sign of a revived economy, but rather a sign of the collapsing USDollar with associated ignited inflation. My view is that the US$ collapse will be more difficult to recognize if all the major currencies fall relative to the basket of commodities, plus gold. The Competing Currency War will raise commodity costs globally without huge currency movements. Lira expects Bernanke to respond with a pathetic inflation fighting scheme of tiny incremental interest rate hikes like what were seen leading up to 1980. The hikes will be mere reeds before a team of horses. Lira predicts the year 2012 will be a dreadful year, with the hyper-inflation tipping point no later than the 1Q2012. From that point, it will accelerate dangerously. By the end of 2012, he suspects the CPI for the year could actually run at 30% annualized. On the economic front, US unemployment, GDP growth, bankruptcies, will all be in the toilet in his words. A powerful inflationary depression will ensue, in unstoppable manner. The collapsing USDollar will make 2012 the truly horrible year, leaking over into a Global Depression. See the Gonzalo Lira website account (CLICK HERE).

Lira summarized a sequence of major milestone events:

  • Rising commodity prices from US$ hedge protection, the effects to be felt most severely in the period January to March of 2011.
  • A beggar thy neighbor race to the bottom in a Competing Currency War, that might well degrade into a trade war, which would force upward imported product prices.
  • The US Federal Reserve recognized as incompetent and inept and confused, shown clearly in this new round of Quantitative Easing, which has rendered the financial markets nervous concerning the its ultimate responsibility, namely safeguarding the USDollar.
  • A USEconomy so weak to the point of collapse, not even 0.25% interest rates can spark investment and growth, which therefore prohibits the USFed from raising interest rates in defense of raging price inflation. 
  • USGovt fiscal deficits close to 10% of GDP annually, obviously unsustainable, especially considering that the cumulative USGovt debt climbs above 100% of GDP.

These factors all point to one and the same thing, an imminent currency collapse. One must give him credit for taking a bold stand. Lira predicts the following detailed sequence of events: 

  • By March 2011, once higher commodity prices reach the marketplace, monthly CPI will be at an annualized rate of not less than 5%.
  • By July 2011, annualized CPI will be no less than 8%.
  • By October 2011, annualized CPI will cross 10%.
  • By March 2012, annualized CPI will cross the hyper-inflationary tipping point of 15%.
  • After that, CPI will continue to rapidly increase, much like in 1980.

My view is that Lira is one sharp cookie. He provides some highly credible and meaningful detail on the pathogenesis, with a very credible timetable. His price inflation forecasts seem a little aggressively high, since corporate liquidations will temper and moderate the price inflation on the cost side. Inventory liquidations will present a grand spectacle of competition between living businesses and dead businesses, with huge resentment, controversy, and national debate. My doubts exist for much success in pushing up prices extremely high, when sales falter radically and incomes do not match the price inflatoin. Incomes will decline in my view, from profit squeeze and business failures. Cost of living raises by companies will be non-existent. The liquidation sales will offset price pressures somewhat during a grand deterioration process for the USEconomy. Instead of hyper-inflation, my forecast is for moderately higher price inflation but much more serious business ruin, job cuts, and loud appeals by Main Street to stop the insanity in WashingtonDC and Wall Street. The USGovt deficit will absolutely explode, lurching toward $2 trillion annua lly. Lira does not mention business cutbacks and job cuts in this scenario, and its powerful feedback mechanism in potent deterioration and disintegration. Vicious feedback loops have been a major theme expressed in the Hat Trick Letter for six years, rooted in reality. My forecast is for the unemployment rate to rise toward 12% before 2012 is far along. The jobless rate should rise as the CPI inflation rate rises, each tied at the hip in a destructive dance.

◄$$$ NEXT FOR THE USECONOMY IS AN INFLATIONARY DEPRESSION. THE DEEP RECESSION WILL WORSEN. THE PRICE INFLATION WILL COME FROM QE2.  THE BOND CRISIS WILL SOON EXPLODE IN FINANCIAL MARKETS. POLITICAL SHOCK IS ASSURED, BUT ITS FACE IS UNCERTAIN. $$$

Memories will be conjured of the Reagan Misery index, which equals CPI + JOBLESS rates. The pundits, maestros, and economist high priests will call what unfolds Stagflation, when it will actually be an Inflationary Depression. The debate will NOT be over semantics, but survival. Then comes the USTreasury debt default in its grudging reality. The USFed will be seen as the only buyer of USTreasurys, while foreign creditors watch in horror. Used as the saving device, the monetary press will actually be the ruinous device. Bank failures will accelerate, and it will be impossible to keep the big US banks afloat. The bond market nationwide will suffer major massive widespread breakdowns. It was begun with European sovereign debt and continues with US municipal bonds. Mortgage bonds are next in the line of fire. Bank runs will grow out of control, with the public fuse lit from absent ATM cash. The supply chain will finally be disrupted, a longstanding Hat Trick Letter forecast.

We will have to wait and see if a USMilitary coup takes place, one that facilitates the debt default process and restores order, even possibly to institute supply rationing. Cooperation with the Tribunal and Receivership committee is essential to minimize the destruction that comes. Foreign creditors will eventually take control. The Japanese have already volunteered to lead the committee. The Germans have been very active in designing and developing the next global currency to enable the global re-adjustment. The World War II outcome will have come full circle. The United States has fallen on its own sword, or as a prominent contact source says, "The United States has become shit before its own shovel."


BIG USBANKS UNDER FIRE

◄$$$ WELLS FARGO HAS BEGUN TO IMPLODE. WHETHER ILLIQUID INSOLVENCY OR MECHANICAL BREAKDOWN DUE TO LACK OF FUNDS, THE BANK HAS BEGUN TO LIMIT WITHDRAWALS. A BANK RUN IS NEXT. ITS PROXIMAL CAUSE FOR RUIN STEMS FROM MORTGAGE LOSSES IN GENERAL. THE BIG USBANKS HAVE BEGUN TO SHOW DEATH SYMPTOMS. LACK OF CASH IN A.T.M. MACHINES IS ONE WARNING OF A BADLY DISRUPTED SUPPLY CHAIN, WARNED BY THE JACKASS. IT HAS BEGUN, LEADING TO A BANK HOLIDAY. $$$

HTL subscriber NoraE in San Francisco reports the following experience. "I just wanted to report you what I have just witnessed in my bank, Wells Fargo Bank in San Francisco at the Potrero shopping center. I was just there to deposit some cash to cover my rent. While I was standing in the line, the bank manager was busy taping several notices nearby all the bank teller windows. The notice was announcing that due to some kind of emergency, a customer can only withdraw up to $500 for now. When I arrived at the window, I asked the teller what kind of emergency they are facing. He replied that it is a technology emergency. He did not state more than that. It was so strange because I just read about the possible bank holiday that may take a place on November 11th just before I left my home."

Another HTL subscriber DavidA from Los Angeles made a direct inquiry. He wrote, "I just called Wells Fargo. They told me I can only take out $300 with my ATM card, maximum. I asked him if other banks were having same problem. He said YES, ALL BANKS ARE HAVING SIMILAR PROBLEMS, ALL BANKS." Several hours later on Saturday night the 6th of November, DavidA followed up. "I just got an OK finally that the system is finally back up at Wells Fargo. They now say I can withdraw more from the ATM. We will soon find out if this was the real deal [bank seizure], or if it is further down the road."

Another HTL subscriber EricD from Florida was on the road in Mexico, and made the following account. "I just called Wells Fargo to activate a card for a friend of mine here in Mexico. They said all systems were down. They could not help me with anything, nor view any account status, etc. Total black out. Almost like they hit the Wells Fargo kill switch, as all computers are in blackout mode right now."

Friend Aaron Krowne, manager of the Mortgage Implode website, pitched in. He wrote, "I took $2000 cash out from Wells/Wachovia today. It did take longer then usual though, which they explained as system integration problems. They seemed a little ruffled."

Steve Quayle reports an insider scoop from a man who works to supply ATM cash dispenser machines for a large US bank. He said, "We have combined between us 180 ATM machines that we service, Cash Load. In order to do this we NEED to order the money, $20 bills only from several banks on a weekly basis. This is a considerable amount weekly, $380 thousand plus. Here is the interesting piece that is developing: In the past several weeks four of the MAJOR banks have informed us that they can no longer provide us with the cash for our business. When pressed to respond, the banks claimed they are not authorized to hold, carry, or have on hand any more more than a certain amount of cash. These are large US banks. We can see our ability to keep these machines with available cash is becoming more and more difficult. This has taken place just in the past few weeks. By the way, these banks were willing to lose our full business due to this issue. We are trying to work with smaller banks now. We will see how long!" See the Zero Hedge article (CLICK HERE) or go directly to see the short interview story on the Quayle website (CLICK HERE).

The problems are not just with Wells Fargo, but also JPMorgan Chase and Bank of America customers limited on withdrawing cash. The rumor of a bank holiday across Twitter and other internet forums has caused early action toward bank runs. Numerous ATMs across the country have crashed over the previous weekend (November 6th & 7th), preventing customers from performing basic transactions. These are not technical problems, but rather insolvency problems laid bare by withdrawals. Different parts of the United States are affected. The Orange County Register reported that the problems were part of a national outage, which prevented people from performing simple transactions such as cashing checks and withdrawing money. Outside California similar issues were blamed in Phoenix Arizona. In Birmingham Alabama, many Wells Fargo customers had online banking accounts where ATMs displayed incorrect balances.

A vigilant British blogger named Phil Brennan studied Twitter feeds and other Internet message boards on the story. He reports that numerous other financial institutions were also affected with cash shortage at ATM machines, including US Bank, Compass, USAA, Suntrust, Fairwinds Credit Union, American Express, BB&T on the East Coast, and PNC. False stories surfaced about the cause being due to glitches in response to changes from Daylight Savings Time, but England had no such troubles. Brennan wondered whether the outages were the first warning shots in a move to devalue the USDollar officially by force. Recall two weeks ago, the USFed chairman Bernanke threw fuel on an international currency war fire by announcing that their inflation paper factory will purchase $600 billion of USTreasury Bonds and up to $300 billion in other mortgage bonds over the next eight months. November 11th came and went with no extended Bank Holiday as rumored. People are responding by moving their money out of their banks in a trend that will not end. Ironically, the exit of large amounts of cash might actually cause the bank run, resulting in the feared bank holiday. The rumors began when a church pastor was told by a manager of a prominent East Coast bank that banks would close for an undetermined amount of time, and that when they reopened, "all withdrawals by checks would be limited to $500 per week, no matter what the balance in the account is." Capital controls are coming, just a matter of time, fully warned in the Hat Trick Letter for over two years. If not in November, they will come perhaps before Feburary 2011, my late date limit forecast. See the Prison Planet article (CLICK HERE).

◄$$$ A DOMINO EFFECT OF BIG USBANK BREAKDOWN IS READY TO BE REVEALED. ONE BIG USBANK FAILURE EVENT WILL BRING DOWN THE PACK OF CARTEL ZOMBIES. THEY SHARE A FATE FROM DIVERSE RUINOUS CONNECTIVE TISSUE IN SIMILAR BALANCE SHEETS AND COMMITMENTS. $$$

Many investors wonder which big US bank will fall first, or show great distress next. It does not matter. Whenever one wobbles badly and noticeably, whether Bank of America or Wells Fargo or Citigroup, the rest as a group will wobble equally and with the same effect. The inescapable outcome will be a temporary shutdown of the US banking industry. No warning will come, since the Powerz do not wish to offer a tipoff and cause a bank run. Those runs will come naturally in time. Word of mouth is powerful when restrictions are placed on money withdrawals like last week. These big US banks share enormous damaged mortgage porfolios. They have shed much in mortgage bonds, redeemed at handsome values by the wrecked USFed. But they hold home loans by the shipload, with huge delinquencies, even defiant homeowners not making payments, some demanding to see property titles. The foreclosure lawsuits have brought about crippling additional interruptions to flow of funds. The prospect of lawsuit challenges will cause huge new losses and legal costs. When one big bank succumbs to pressure, watch the others falter in direct sequence. The events are very near. Signals abound. It matters not which falls first, but whether any falls. Fall, they will. Any resulting bank holiday will expose depositors to typical Third World risks of being victims to an organized bank heist by the cartel of banks that control the USGovt and are immune from law.

It remains a hot issue which big bank will die first in the 2010 chapter of failure. JPMorgan is under scrutiny for both silver market manipulation and document fraud in mortgage foreclosure claims. Some class action lawsuits cite the venerable syndicate titan. Bank of America is under siege from mortgage fraud in numerous respects, even gigantic mortgage security Put-Backs, where they will be forced to buy back at the original price ruined mortgage bonds containing defective and fraudulent elements. They might be compelled to swallow a truckload of toxic mortgage bonds and suffer outsized new credit losses of immediate consequence. Wells Fargo is often cited in the same breath as Bank of America as being at high risk, for the same reasons. BOA is kept afloat by narcotics money, as two sources confirmed. HSBC is mentioned in private circles as being a dead man walking, with a struggle to avoid a shock default almost every day. HSBC manages the fraudulent GLD exchange traded fund, which in my view is destined to trade at a 20% penalty (opposite of premium) as a result of shareholder lawsuits, absent inventory, and revelation of being an empty Ponzi shell game in collusion with the COMEX & LBMA metals exchanges. Regardless of which bank falls, the important issue is what are they holding in common on balance sheets. What other big banks hold the same assets? Which banks carry risks of bond Put-Backs? Which banks risk civil lawsuit litigation? Which banks depend upon USFed and USGovt largesse to keep them afloat? Which banks turn to Fannie Mae as a common dumping ground? The answer might be as simple as ALL OF THEM to each question. The hidden key is credit derivatives. This is not a mountain climbing exercise, where one bank can be aided upon a sudden fall by the other strong banks, all tethered together in safety lines. All these big banks are slipping with loose hooks and frayed lines. They will rip out the hooks & clamps from other banks placed within the rock crevices, if any one falls.

◄$$$ BEWARE OF THE BIG BANK DEATH SPIRAL. DEEP LOSSES LEAVE THEM VULNERABLE TO INTERNAL SEIZURES DUE TO ILLIQUIDITY. THE EXTERNAL THREAT IS FROM CONTINUED LOAN DEFAULTS, COMPOUNDED BY CIVIL DISOBEDIENCE. THE BIG USBANKS ARE BLUFFING, LYING, AND DECEIVING ON A RESUMED FORECLOSURE PROCESS, WHICH THEY DO NOT DARE RESUME. THE ARE DESPERATE TO AVOID CIVIL DISOBEDIENCE. $$$

The denials at Wells Fargo are a distraction. They can blame the absence of available funds on technological challenges all they wish. Lack of solvency and illiquidity do not qualify as related to technology. All banks are not having the identical problems. The big US banks are in death spiral, like the Jackass wrote about in the October 28th article entitled "Imminent Big Bank Death Spiral" on Financial Sense (CLICK HERE). It warned that the mortgage foreclosure scandal poses a grand threat to big banks. Watch the BKX stock index for clues, as they are ripe for huge new losses. The BKX index lifted out of danger last week, now resting above the moving average perch. The MERS title database and the REMIC funding vehcile for mortgage bonds stand as twin RICO pillars of corruption. The Put-Back of such bonds to issuing banks could make another estimated $500 billion in losses, whose rescue might require a hidden TARP-2 rolled into the massive new Quantitative Easing 2 initiative. Not all banks are at great risk, but rather the biggest ones which are involved in fortifying illicitly the USDollar and simultaneously those leading corruption phalanx of firms in mortgage underwriting and mortgage securities issuance. Expect similar stories in the next couple weeks for Wells Fargo, Bank of America, Citibank, JPMorgan, and HSBC. What the big US banks all have in common is mortgage putbacks, foreclosure fraud, lawsuits, and growing civil disobedience from homeowners refusing to pay monthly payments. Their fates are interwoven, since they suffer from the same financial ills. The big broken banks have begun to show death symptoms. The irony comes from heavy bank withdrawals leading up to the November 11th rumored bank holiday could actually cause a bank run at certain banks. If widespread enough, the banking industry reaction might indeed be a bank holiday. The more important point is that most big US banks are dead, insolvent, giant zombies that lack reserves and increasingly lack cash.

The 'Friends of Friend' group is a unique clan with excellent sources of information. At one of their gatherings, a gentleman visited. He is a lawyer who had a lot of experience in asset backed securities. He offered an internal snapshot of the real status of the foreclosure (FC) fiasco. He discussed the supposed suspended mortgage foreclosures by several large loan servicer firm. At risk is exposure to court reversals and possible sanctions for undecipherable records of actual ownership. The guest blew away the notion of a resumed FC process by the big banks, implying that documents and title records were still very much not in order. He asserted that banks had only announced FC would resume, a major BLUFF, since they have NOT resumed, and the big banks do not DARE resume. They are stuck in stand-by mode. He made direct comments as to motive. The previous announcement of FC suspensions had prompted many mortgage payers to consider active voluntary loan default, since there would be no punishment. Sensing that suspending the FC process could lead to a tidal wave of new defaults among home loans in good standing, still current in payments, they simply announced resumption as a warning, a bluff, a defensive ruse. He let it be known that home foreclosures were to be delayed indefinitely AS POLICY, because the records remain murky, promote legal challenges, and probably result in penalties. My belief is that if within the legal process using attorneys and the courts, home loan mortgage holders have a good chance of receiving total loan forgiveness in the face of banker corruption, negligence, and abuses. Precedents are being made exactly to that effect!!

◄$$$ CALIFORNIA CLASS ACTION LAWSUIT INCLUDES A CLAIM OF BETWEEN $60 AND $120 BILLION FROM THE M.E.R.S. TITLE DATABASE IN UNPAID TITLE RECORDING FEES. THE SLIPPERY WALL STREET AND FANNIE MAE CONTRAPTION HAS BACKFIRED. IT LACKS LEGAL STANDING TO FORECLOSE ON A HOME. IT WAS SLOPPY IN RECORDING MORTGAGE BOND TITLES. IT DID NOT PAY TITLE FEES. IT SMELLS OF RACKETEERING. SEVERAL STATES HAVE CLASS ACTION LAWSUITS, MOST CITING R.I.C.O. ACTIVITY. $$$

The big banks, the big insurer, and Fannie Mae conspired to facilitate mortgage bond securitization, rapid bond trading, and in all likelihood widespread massive fraud. Their device was the Mortgage Electronic Registration System (MERS). It was designed to record property titles and keep the mortgage bonds straight for claims to income stream from the home loans linked to titles. It turned out to become a gigantic racketeering device. The group of financial firms involved in the MERS creation were Bank of America, GMAC, Wells Fargo, Washington Mutual (under JPMorgan Chase), the United Guaranty unit of American Intl Group, Fannie Mae, Freddie Mac, and several mortgage service companies. During the home purchase closing process, a contract is signed that appointed MERS as the official Nominee for the lender that approved the mortgage. As such, the Nominee is given the right to flip the mortgage to any other bank or lender it chooses, even to place the home loan into a package like an asset backed bond securities. The MERS database must keep the records straight. Its structure is slippery slimy. MERS Inc holds the liens but has no employees, and MERSCORP, the parent corporation has only about 50 employers, all designed to stay beyond arm's length from legal liability. Plaintiff lawyers in the lawsuits will undoubtedly argue that the corporate veil should be pierced as they say. They will argue that MERS has not followed normal corporate procedures, has trampled on customary formalities, is not adequately capitalized. Regardless, the courts are not likely to be sympathetic to this financial syndicate device and ploy. Court judgments are likely to slam MERS and its parents hiding behind a thin veil.

Next the crux of the controversy. Every time a change comes on the property title, such as when the Nominee switches the lender on a title for another servicer, local governments require that a new title be recorded. The common practice is for those governments, the county or municipality involved, to charge a recording fee. MERS also charges a fee, but a smaller one than government recording fees. The ultimate problem is that in creating MERS, these institutions forcibly changed the land title system in the United States without approval. In my view it was a Fascist Business Model power play. The land title system over the US history has been relied upon to determine legal ownership status of land titleholders. Not only did the MERS syndicate evade paying $billions in fees to local governments, but they paid themselves from the fees that MERS collected. Essentially the syndicate firms stole the recording fees. The Golden State has taken legal action, with teeth. MERS is facing class action lawsuits and civil racketeering suits around the country. Their members are being individually named in all these lawsuits. One suit alleges that MERS owes California a potential $60 billion to $120 billion in unpaid land recording fees. The full weight of losing the case is formidable. If lawsuits against MERS and all its members are successful, unpaid recording fees and fines (as much as $10,000 per incident) would make every one of these firms insolvent, and force their ruin. See the Money Morning article (CLICK HERE).

The attack by the legal profession does not stop there. Two lawyers from Nevada have filed suit in 17 states, alleging that banks scoffed from payments of $billions to counties. The Virginia state assembly will pursue investigation of MERS by the state attorney general over failure to pay recording fees. The back office procedures of MERS are being called into question, going to the heart of the mortgage fraud scandal. MERS had the authority to act on behalf of banks and bond investors. Here is where MERS has direct culpability. It kept track of titles and county offices. When the mortgage was first filed, the counties received their fees. But when the mortgage bonds were actively traded, no further fees were paid. MERS is an admitted fee avoidance scheme, claims Robert Hager, who with his partner Treva Hearne in Nevada are filing lawsuits. The intrepid lawyers are confronting MERS and its bank owners, naming Fannie Mae & Freddie Mac. The lawsuits were filed in California, Nevada, Tennessee, and 14 undisclosed states where the cases are still under court seal. Hager and Hearne chose the states carefully according to whose laws allow false claims suits where local governments are cheated.

The lawsuits allege that by privatizing public records, MERS enabled banks to circumvent American property law and bypass the county fee and filing requirements, costing $billions in lost revenue over more than a decade. MERS countered with flimsy public comebacks, claiming its process is legal, and that the fees are not required under its system. They actually said, "These are local fees for service. If no service is needed or requested, no fee is appropriate." Internal estimates have been offered. RK Arnold, the CEO of MERS, testified in 2009 with a boast that under the very conservative assumption that each mortgage tracked had been resold and re-recorded only one time, the MERS device would have saved the industry $2.4 billion in recording costs. Think bigger, since the norm is for a mortgage to be resold a dozen times or more. See the Yahoo Finance article (CLICK HERE). Under the same argument, citizens should be able to reduce their federal taxes what what the endless war on terrorism costs, if not desired or requested. Prepare for a titanic battle in court, the states versus the (federal) big banks.

◄$$$ THE ENTIRE M.E.R.S. ENTITY IS BASELESS FROM A LEGAL STANDPOINT. THE RESULT IS THAT MORTGAGE BONDS, IF CHALLENGED IN THE COURTS, WILL PROBABLY BE SHOWN EITHER TO HAVE NO VALUE (SINCE NO CLAIM ON THE MORTGAGE PAYMENT STREAM) OR TO BE ILLEGAL SECURITIES (PUTTING THE BOND ISSUER LIABLE). A FEW $TRILLION IN MORTGAGE BONDS WOULD BE DECLARED AS WORTHLESS. THE USCONGRESS MIGHT USE THE LAME DUCK SESSION TO PROVIDE EX-POST FACTO LEEWAY FORGIVENESS TO WALL STREET FOR ITS M.E.R.S. FRAUD. $$$

Typically, the same party holds both the note (home loan) and the deed of trust (property title). In the event that the note and the deed of trust are split, the note then becomes unsecured. The practical effect of separating the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the deed of trust is the agent of the holder of the note. This technical detail was run roughshod in violation by the banks when they designed MERS and issued mortgage bonds out of control. Watch to see how the corrupted USCongress attempts to whitewash this longstanding legal principle. Without this crucial legal relationship, the person holding only the note lacks the power to foreclose in the event of default. The person holding only the deed of trust will never win on a default challenge, because only the holder of the note is entitled to payment of the underlying obligation. The mortgage loan became ineffectual upon separation of the deed of trust. If the growing line of cases asserting that MERS is neither a mortgagee nor a deed of trust beneficiary is correct, then courts must soon confront profound questions about the very enforceability of MERS security agreements. To date, state supreme courts have ruled that MERS has no legal standing. A compelling legal argument has so far prevailed that loans originated through the MERS system fail to create enforceable liens.

THE CONCLUSION IS THAT MERS INVOLVEMENT RENDERS A MORTGAGE BOND ASSOCIATED WITH INHERENT PROPERTY TITLES AS WORTHLESS. Refer to perhaps $3 to $4 trillion in worthless mortgage bonds if challenged, maybe more. The backfire to Wall Street, AIG, and Fannie Mae is worthless mortgage bonds in possession, a very heavy penalty for greed, corruption, carelessness, and arrogance. The circle of fraud and deceit has permeated the entire structure, market, and process, from its lax defective loan origination to its end in home foreclosure seizures. In the October Hat Trick Letter Macro Economic Report, a discussion was given for both the MERS title database and the REMIC funding channels. The REMIC was designed for income tax evasion, and its illegal structure enabled criminal fraud throughout the majority of mortgage bonds in the US financial system. The document fraud with mass robot signers is another matter, whose testimony has been coming out for weeks.

Never under-estimate the USCongress for its corruption and harlot role with Wall Street, whose firms are giant tin cup panhandlers masquerading as banks. The USGovt would not dare bail them out directly like with a TARP-2 package. That is precisely why ex-post facto legislation is on the USCongress table to forgive them of their criminal fraud, even perhaps document fraud. Very heavy bank lobby funds are behind the movement. Wall Street money is pouring into the coffers of numerous legislators. The legislation is already being drafted under the interstate commerce clause to ratify MERS and all its past activity retroactively. It appears that the Obama Admin is backing the bill. Confirmation has come from several people in sensitive positions. Action on the bill is scheduled to happen during the lame duck session between now and the end of the the calendar year 2010. Watch for some extraneous bill to have attached a provision whose effect will go even further than the notarization bill that passed by a voice vote (no record to defend before the public). Obama gave it a pocket veto, but might sign the full forgiveness bill. See the Word Press article (CLICK HERE).

◄$$$ BIG USBANKS HAVE AN INCENTIVE TO AVOID A QUICKER FORECLOSURE PROCESS AND TO AVOID LOAN MODIFICATION PROGRAMS. THEY BENEFIT FROM TRIGGERING THE FORECLOSURE PROCESS, FROM KEEPING THE BANK OWNED BLOAT OF SEIZED HOMES HIGH, AND FROM WORKING TOWARD SHORT SALE LIQUIDATIONS. THE INCENTIVE IS A 25% FEE IN RECOVERY SALES, AS OPPOSED TO FOREBEARANCE (LETTING IT GO, NOT PURSUING FORECLOSURE). $$$

The big US banks have rigged the system for their benefit. They have been quick to initiate the foreclosure process, sometimes not when proper. But worse, they actively avoid the home loan modification initiatives like the USGovt HAMP program. Out of a few million fraudulent mortgages, Bank of America claims to have modified 700 thousand. Of these, 85k home loans are under HAMP in revision. Still, the USDept Treasury believe that BOA has another 375k home mortgages that already meet HAMP terms. The national average for the entire foreclosure process is 450 days. In other words, Bank of America has been dragging its feet in grand style, negligent in its efforts to modify mortgages within the program. My contention for three years has been that big banks will not modify home loans since doing so alters the specific clauses within the mortgage contract, and thus the bond securities with claims to the home loan revenue. So alteration would require a modification of the mortgage bond also, which would bring light to colossal bond fraud, missing property titles, even duplicate usage of mortgage payment income streams. So they do not modify, active avoidance. More incentive exists to bleed the homeowner. The big banks also do not want to modify when the process is even more complicated by second mortgage liens. The banks hope the homeowner can return to good standing, so that the bank does not have to write off the second mortgage or home equity line of credit as a 100% loss. Many seconds are just that, total losses. A foreclosure on a first mortgage almost always means a wipeout total loss on second liens. Therefore, for the above reasons, big banks choose not to take the forebearance route, which is a voluntary decision not to go forward with foreclosure, a forgiveness of sorts.

The Pooling & Service Agreements (PSA) that enable proper collection and allocation of monthly mortgage payments have built in features that are not well known. The PSA deals give the banks an incentive to create defaults that were not in full default just yet. Take Citibank home loans, for instance. If a deficiency action is taken against the mortgage underwriter, CitiMortgage may proceed for the deficiency legally. Take an example, like Mr Smith has a $200k home loan originated with Citibank, but XYZ Bank took over the loan at a later date, which is typical. XYZ Bank sells it in a short sale for $150k in liquidation. Smith owes $50k to exit his loan obligation, and XYZ Bank will pursue Smith to get it. CitiMortgage can retain 25% of the net proceeds received from the mortgagor pursuant to a deficiency action as compensation for proceeding with the deficiency action. The new mortgagor is XYZ Bank. The deficiency action might be a court case that attaches Smith's assets. So the more people the banks can induce, push, or strongarm into default, the more money they make in recovery actions. The PSA details for the loan pools are written in such a manner that if homeowners can be induced to default, thereby denying them a HAMP modification, the banks can recover more money by further stripping assets from the customer in a salvage process. See the Market Ticker featuring Bill Black (CLICK HERE).

◄$$$ SHEEPLE JUSTICE VERSUS MEGA-BANKS COULD REVEAL A QUINTESSENTIAL STATES RIGHTS BATTLE VERSUS THE FEDERAL GOVT CONTROLLED BY THE BANKING SYNDICATE. LOCAL JUDGES ARE TAKING ACTION AGAINST OBVIOUS CRIMINAL AND PREDATORY BEHAVIOR BY THE BIG USBANKS. PEOPLE WHO CHALLENGE ARE OFTEN WINNING THEIR HOMES FREE & CLEAR. FRAUDULENT ATTEMPTS TO FORECLOSE AND SEIZE HOMES ARE BEING INTERRUPTED BY THOSE WHO CHALLENGE. LEGAL PRECEDENTS ARE SET. BANKS ARE WORRIED. REGARD THE BATTLE AS AN EXTENSION OF THE TENTH AMENDMENT CHALLENGE. $$$

A titanic battle to retain private property has been waged. It has begun. But the battle has more significance than perhaps is evident at the surface. The battle is early but it is for the nation's heart & soul. The courts are showing favor to the individual people, finding fault with the lack of due process conducted by the big US banks, and even chastising those banks. As a result thousands of foreclosures are put on hold. The mountain of defective and mishandled mortgage documents found their way to court for inspection. Judges are slamming the banks. But the struggle in my view reveals a bigger macrocosm, where the states are pitted against the federal government. The proxy warriors for the states are local courts. The proxy warriors for the USGovt are the big Wall Street banks, who have taken control of the national government bodies in totality. The states are fighting and winning the battle on home property challenges. Recall that in separate movements, 20 states have invoked the Tenth Amendment in a struggle to wrest back control from the New York and WashingtonDC syndicate. Their turf struggle is over taxation, waged war, and national security directives. Witness numerous microcosm battles, erupting conflicts that serve as substitutes for state revolt against the corrupt federal apparataus, whose control was wrested by the syndicate (banks, arms, natrcotics, news media). The legal structure favors the states. Watch the USCongress for sweeping actions that violate the US Constitution. The wild card remains the supposed attacks on America, which bear all the signs of false flag attacks by syndicate elements with a strong power base within the USGovt and its many powerful agencies. The courts eventually will do battle with the federal officials. Let's see if the USCongress is bold enough to attempt to pass legislation that forgives criminal activity by the big banks, as they pursue their agenda to own a significant portion of American private residential property. Fannie Mae already owns a large amount. What comes might be Fascist Business Model corrupt extensions.

Consider a New York state case one year ago, when Long Island Judge Jeffrey Spinner concluded that the mortgage company paperwork in a foreclosure case was so flawed and its behavior in negotiations with the borrower so repugnant (his words), that the judge canceled the entire $292,500 debt and granted the house back with full title to the homeowner, Diane Yano-Horoski. The case is under appeal. It has alarmed the biggest US banks and lenders, who fear openly that it could establish a dramatic new legal precedent and turn upside down the nation's foreclosure system. Judge Spinner and a group of colleagues in metro New York City estimate their rulings result in dismissals in 20% to 50% of foreclosure cases, based upon sloppy or fraudulent document paperwork managed by lenders. Their decisions bring under extreme focus the central role that lower court judges (in the states) are having in the resolution of the current foreclosure debacle. The court challenges have mushroomed after revelation of fraudulent documents used within the foreclosure process to seize the homes of borrowers who were in loan default. In millions of cases across the United States, local judges have wide latitude to impose sanctions on banks, to liberate homeowners from their mortgage debts, or the opposite, to allow the lending institutions to proceed with flawed foreclosures. The legal power rests locally, not federally, at least up to now. Ultimately, the industry is likely to face a disturbing scenario laced with inconsistency, whereby different decisions are ruled by courts in various of the 50 states. Some contradictions will appear, even as precedent is unclear. An attempt for national resolution opens the door for a corrupt solution imposed by the USCongress, influenced by big bank lobby funds. The legal system will surely become bogged down, take foreclosed homes off the market, and keep homeowners like the Yano-Horoski family in legal limbo during appeals for years. A gigantic hairball is building within the system pipelines.

The counties of Suffolk and Nassau on Long Island and Kings County in Brooklyn have among the highest rates of foreclosure in the New York state. The staff of 81 judges handling these foreclosures has become infamous over the past few years for scrutinizing paperwork for errors, and leaning on those errors in the plaintiff judgments against mortgage companies. Regard their rulings as a hint of an emerging pattern, and glimpse into how the crisis could unfold across in the country. The group of judges has a reputation for taking a harsh stand against mortgage companies when defective paperwork issues, document forgery, or other blatant actions are exposed. JPMorgan Chase gives special attention to cases in these three counties, requiring document processors to secure a high ranking executive signature on the area's foreclosure filings. Judge Dana Winslow of Nassau County is open about the process and its deep implications. Winslow claims that judges in his area are more prone to question filings because of a deep lack of trust for Wall Street firms. In this region, judges have greater awareness generally about malfeasance within the financial sector. The irony is thick that The Big Apple is where the bond fraud originated, and the Big Apple is where the court imposed home loan forgiveness has seen the strongest revolt.

Craig Robins is a foreclosure defense attorney and author of the Long Island Bankruptcy blog. He said of the Yano-Horoski case, "I think we are going to see more decisions like this across the country. Many judges are finding their court calendars clogged with cases that have all these flaws in them that never should have been brought to court in the first place, or should never have been brought to court without more due diligence." See the Washington Post article (CLICK HERE). The author does not attach the USGovt vs State signficance. Not yet!! The trend extends, although still early, to local law enforcement to oppose national violations. The local police tell the feds to take a hike and leave their home turf, their jurisdiction. The game changer could be attacks on nation, like 9/11, which bring in the shady USGovt agencies and national security overrides. Since the Patriot Act, no checks & balances exist, period!!

The main threat to the states flexing muscles and ripping homes from the big banks and granting them free & clear to John Q Public is the ongoing financial dependence. The states, although they hand over huge sums to the federal government in income taxes, Social Security, and Medicare/aid payments, depend upon the USGovt for state aid. That federal aid covers direct budget subsidies, but also aid for education, roads, research grants, special projects, and airport management. Let's watch to see if the USGovt ministries run by Wall Street deliver some counter-attacks to the states to force them to toe the line and become more compliant, to end their populist property revolt. The wild card for the USGovt is to deliver some hokey terrorist attack in order to undercut all state power using the national security trump card. That is what 9/11 was all about, in addition to being a grandiose bank heist for bonds, gold, and diamonds, and then opening to door to USMilitary contractor fraud. The next false flag attack of the US by the USGovt agencies will be much more difficult to pull off, but its motive is shaping up with the court decisions against the big banks. Such an attack might actually bring about the rumored bank holiday.

HOUSING CRIPPLED PERMANENTLY

◄$$$ FANNIE MAE INVENTORY OF SEIZED FORECLOSURE PROPERTIES GREW BY 24% IN 3Q2010. THE PIPELINE FOR SALE HAS BEEN BADLY INTERRUPTED BY CONTRACT DOCUMENT FRAUD AND LEGAL ENTANGLEMENTS WITH VERY PUBLIC CHALLENGES. SOME BELIEVE YEARS ARE NEEDED TO RETURN TO NORMALCY. MY VIEW IS NEVER WILL NORMAL TIMES BE SEEN AGAIN OF THE HOUSING MARKET IN THE UNITED STATES. $$$

The combined REO (Real Estate Owned) inventory for Fannie Mae, Freddie Mac, and the Federal Housing Admin blew up by 24% at the end of 3Q2010 versus 2Q2010. This occurred in an environment claimed by bank leaders to be stabilizing, pure nonsense. The REO inventory from foreclosure seizures increased 92% in annual growth, when compared to 3Q2009, as a gigantic bloat of puss grew on the banker hips. The actual REO inventory for these sewage processors has increased from 153,007 homes at the end of September 2009 to a record 293,171 homes at the end of September 2010. These are all record levels at the agency and its subsidiary sewage treatment vats. The total REO inventory in the banking industry is much larger, perhaps double. Private label securities and banks and thrifts also hold a substantial number of seized homes. This inventory acts as a massive overhang of auxiliary supply. Fannie Mae expects that given the current volume of seriously delinquent loans in their single family guaranty book of business, together with the large current and anticipated supply of single family homes in the market, that several years must pass before their REO inventory approaches pre-2008 levels. Try never!! The problems are worsening all around, as an acceleration is obvious even on the graphic. This trend will work toward an explosive finale.

The new immediate problem is the obstacle put before the foreclosure process, as a result of forged documents, improper property titles, defects and fraud, even legal challenges and class action lawsuits. The result of such obstructions to ripping homes from their owners will likely result in higher serious delinquency rates, longer foreclosure timelines, higher foreclosed property expenses, higher credit losses, higher legal expenses, and an increase in the number of REO properties they are unable to deliver to the market for sale. The civil disobedience is the red herring. Observe the REO inventory of homes by the FHA collectively. See the Calculated Risk article (CLICK HERE). In no way does a stability appear on the horizon, quite the opposite with an explosion. As the FHA volume rises in home inventory, look for powerful political outcry in objection to a national government movement toward collectivism, a communism hallmark. This could have been the objective all along.

◄$$$ THE 2ND MORTGAGE LIEN THREAT IS ANOTHER $450 BILLION MONSTER. WORSE, IT FORMS A GRAND OBSTACLE IN THE FORECLOSURE PROCESS. BANKS REFUSE TO TAKE TOTAL LOSSES ON SECONDS. SO THE LOGJAM OF DEFAULTED AND FORECLOSED HOMES PILES UP IN INVENTORY. AN OMNIBUS BAILOUT PLAN WILL BE DISCUSSED SOON, LIKE A MARSHALL PLAN. THE HOUSING MARKET IS TOTALLY DESTROYED. $$$

An epic battle is underway between junior and senior property liens, or in common parlance, between first mortgage and second mortgage underwriters. In thousands of cases, the firsts have defaulted, but the banks have chosen not to bite the bullet and suffer 100% total losses on second mortgages. At stake is the so-called Second Lien Monster that requires an entirely new strategy to deal with. It has created a huge logjam in the bank balance sheets, as they are unwilling to resolve these portfolio acid blots. A vicious triangle has emerged, replete with conflict, absent constructive engagement, between the junior bond holders versus the senior bondholders versus the mortgage loan servicers. A ripe $426 billion in second lien loans occupy on the balance sheets of Bank of America, JPMorgan, Wells Fargo, and Citibank. It is like a concentrated puss body within the bigger REO puss body. It has turned the mortgage market into a total fiasco, in my view never to return to normal. The price decline coupled with bond fraud, structural defects, and document forgery have rendered the housing market permanently destroyed, as REO homes accumulate with second lien complications.

The big bank exposure on second mortgages and home equity loans is sufficient to wipe out over half of the entire bank equity. Bear in mind that the big banks are insolvent with negative valued balance sheets in the world of reality beyond FASB niceties. Wells Fargo has more second lien exposure than any other big bank, relative to their equity valuation (total stock market cap value). They must resolve the conflict, since the bank is dead two times over. They must admit the second liens are worthless, but they refuse to do so. Fantasy wafts like fairies, as banks cite 5% delinquency on second lien home loans, when in almost every case, the lien is worthless. See the Big Four exposure on second liens, in which Citibank has much less than Bank of America, Wells Fargo, or JPMorgan. Some mid-tier banks are dead on arrival.

No good solutions are available. The banks must accept the losses, with major writedowns at a time when they are already crippled. Regulatory easing only masks the problem. A bond compromise could happen, except for the pecking order legally favoring the senior liens. Major refinanced loan packages at a macro level could sweep the problem under the rug, but each loan must be resolved. The prospect of a controversial TARP 2-type intervention for the banks is what they need. But they need several $500 billion TARP to cover each of a few acid pits, including the mortgage bond Put-Backs, where defecitve loans are sent back to the issuing banks. DoubleLine Capital portfolio manager Vincent Fiorillo could be on the right track. He called for a multi-lateral bailout costing $trillions of dollars in monetary inflation much like what was given in the Marshall Plan. That project saved West Berlin 65 years ago. The current situation might not be favorable for such a solution, since criminal fraud is openly laced throughout the mortgage market in a public spectacle. Fiorillo said, "No one wants to put the banks in an untenable situation. If the choice is between getting something, I think that as a fiduciary getting something would be my first choice." He expects ultimately what is required is some third party to bring all the sides together and hammer out what he called a Marshall Plan for the mortgage business. His concept is sound, but the climate is impossible.

Complicating the mortgage mix is the insider game played by PIMCO, the bond giant. They see the USGovt policy ahead of time, and line up their bonds for USFed monetization, first in line. This is a corrupt added chapter to the Fascist Business Model once more. One can call PIMCO and the New York Fed de facto monopolists. The banks must act together in unison, with a unified solid front to confront these monopolists. The banks must find relief from much of their credit portfolios, and force them back to Wall Street firms that packaged the home loans. They must force mortgage bond Put-Backs aggressively. The status quo involves the continued growth of a festering sore loaded with toxic paper. The political obstacles are so formidable!! Any Marshall Plan must reduce the crushed mortgage market whose US housing sector is frozen in a morass by what is becoming perceived as the biggest and most pervasive mortgage fraud in history. It must be done, or else the attached dependent USEconomy will collapse. That is my forecast, collapse in the course of a ravaging price inflation fever. A USTreasury default will be unavoidable. See the Zero Hedge article (CLICK HERE).

◄$$$ THE SHADOW HOUSING INVENTORY GUARANTEES NO HOUSING MARKET RECOVERY UNTIL AT LEAST THE YEAR 2015 IN CONVENTIONAL ANALYSIS. THE EXCESS HIDDEN UNSOLD INVENTORY ASSURES THE LONG PERIOD BEFORE ANYTHING REMOTELY LIKE EQUILIBRIUM IS ATTAINED. EVEN FORECLOSURE MORATORIUM ACCOMPLISHES NOTHING. THE PROBLEM IS STRUCTURAL, AND NOT FIXABLE. EXPECT HOUSING PRICES TO FALL FAR BELOW CONSTRUCTION COSTS, AS IS THE HISTORICAL NORM. $$$

Reggie Middleton is a solid excellent analyst. He digs into the housing and mortgage markets regularly. He came out with some illuminating analysis worth recounting that reveals a horrendous outlook for resolution anytime soon, but in realistic rational terms. Not only is the secondary shelf inventory in excess, but more supply awaits, identified capably by Reggie. He wrote, "The market's inability to absorb the excess volume has created excessive Shadow Inventory that consists primarily of distressed, foreclosed, and bank REO properties, but do contain several other categories of property as well. Most references to shadow inventory do not include the disgruntled existing home owner that has had to temporarily take their property off the market due to weak demand, nor the new construction that has turned to rental waiting for the market to firm. At any sign of a firming market returns, there will be a deluge of supply to meet it, thereby throwing the Supply & Demand balance back to the supply side. We are doubtful that an actual housing recovery has commenced other than a short-term reaction to government bubble blowing without the organic means to be self sustaining sans government assistance. Recent housing price data corroborates our conclusions. What has been referred to in the media as the Fledgling Recovery continues to remind us that we will not find equilibrium until the Shadow Inventory is exhausted and the excess problem loans are purged from the system. Foreclosed sales account for nearly a quarter of total national housing sales with an average [price] discount of around 26%. That number surpasses 55% in some states! Any foreclosure moratorium (such as the de-facto ones we have now or the legislated one we had last year) further exacerbate the situation as pent-up foreclosures re-enter the market, compounding the problems at hand." Wow! That is bleak! Nothing can interrupt the natural progression. Reggie goes further to estimate the length of time before equilibrium is even possible.

A staggering volume of distressed homes pollutes the housing market, where many units are not up for sale, but indeed contain hefty negative equity. Standard & Poor estimates the principal balance of distressed homes is $460 billion, and accounts for over 30% of the outstanding residential mortgage backed securities (RMBS) outside of Fannie Mae & Freddie Mac. The magnitude of debt, almost half a $trillion, overwhelms the paltry size of tangible equity that supports these securities, which contain leverage to boot. High delinquencies and foreclosures, low cure rates from loan modification programs, longer liquidation times, and overall market deterioration from continued job losses assure that the housing market will remain under tremendous strain for a long time. Middleton poses certain reasonable assumptions, using data from Lender Processing Services, and proceeds with some estimations under different scenarios. He arrives at a weighted average cure rate of 7.7%, consistent with the steadily optimistic Fitch Ratings, which estimated it at 6.6% back in 2009. He estimates an overall supply of shadow inventory at 6.45 million home units. He puts the volume into perspective. Existing home sales total around 4.1 million units. Therefore, an hidden shadow supply (awaiting in the future) overhang of 1.56 times the annual existing home sales burdens the market and its elusive potential for equilibrium.

Middleton concludes, "We estimate that it would take about 6.2 years to clear the shadow inventory, if foreclosure sales account for 25% of sales (7.8 years and 5.2 years if foreclosure sales account for 20% and 30% of existing home sales, respectively)." Either scenario is horrendous and assures the big US zombie banks of continued crippling losses, eventually sending them into the dustbin or cemetery. See the Zero Hedge article (CLICK HERE). Thanks to Reggie for a great graph, which was reduced in size.

My expectation is that the housing market will scrape along for at least two years and plunge lower in price, putting aside the big bank woes that will force some vicious feedback loops. The loops involve sudden mass liquidations by failed giant banks. My forecast is for housing prices to fall on a broad basis nationally to a level 15% to 20% below construction costs, accompanied to loud constant caustic complaints of a wrecked market. Depending on the disaster afoot, the USEconomy accelerated recession, greater widespread job losses, and the swelling REO bank home inventory, home prices could go to 30% below construction costs. A contact out West reports that he already has a few examples of acquaintances buying at 15% to 30% under constuction cost right now in California and Nevada.

THE INFECTED USECONOMY

◄$$$ UPCOMING PRICE INFLATION WILL SOON BE CONFUSED AS ECONOMIC GROWTH, IN A GRAND DECEPTION. ALL ERROR IN MEASURING PRICE INFLATION WILL SHOW UP AS FALSELY REPORTED GROWTH IN THE GROSS DOMESTIC PRODUCT. SINCE THE ERROR IS GROWING SHARPLY, SO SHOULD CLAIMS OF A JUST-IN-TIME GROWTH SPURT. THE USFED NEEDS TO JUSTIFY ITS MONETARY HYPER-INFLATION. BY LATE 2011 OR EARLY 2012 THE HORRENDOUS STAGFLATION WILL BE RECOGNIZED IN FULL BLOOM, BUT IT WILL BE TOO LATE. $$$

For the last several years, price inflation within the USEconomy has been grossly under-estaimated, actually 15 years. The benefits to the USGovt are many, like quashing public fears of eroding wealth, like reducing cost of living increases in Social Security and USGovt pensions, and like giving a comfort level to savers when they put hard earned money into bank CDs that pay next to nothing. Officially the Implicit Price Deflator index is used to reduce nominal Gross Domestic Product calculations. The USGovt accounting fraud artisans take the raw data from goods & services produced within the US shores, and reduce the total aggregate count by the measured price inflation. The Deflator index is derived from the Personal Consumption Expenditures (PCE), which is kept in lockstep with the fraudulent Consumer Price Index. It is a basic nature of the calculations that whatever error is made on the low side for the price inflation turns up as a stated exaggeration for the economic growth side. The CPI and PCE have been moribund low, as the USGovt has preferred, for a long time. So GPD has been exaggerated for a long time. In the last 10 to 15 months, the CPI has picked up.

The most accurate independent measurement of price inflation is done by the Shadow Govt Statistics folks. They report a 7.0% annual CPI up to September, after which a rise to 8.5% in the month of October. The official CPI heaped upon the public from the corrupted labs is 2.0% to 2.5% each month, a departure from reality. The official Price Deflator is in a similar range, actually trapped between 0% and 2.0% in the last full year. It is very safe to conclude that the GDP growth of 2% or 3% announced with grand deception by the USGovt is in gross exaggeration. The GDP growth error in the calculation is thus 5% to 6%, enough so that the USEconomy is in 3% recession, give or take!! Be conservative in a 5% downward adjustment from blatantly wrong price inflation adjustment. The lack of jobs growth, and steady jobs loss testify to the ongoing chronic recession, not growth!! The last couple quarters for the USEconomy have actually suffered 2.5% to 3.0% recessions, called growth from the wrong PCE and Price Deflator measurements. The public is aware.

The USFed and USGovt will be desperate by the spring 2011 to show results from the powerful grandiose monetary expansion in QE2. The USCongress will be motivated to show economic growth, since they decided not to pass a second Economic Stimulus Bill. The big story by next spring and early summer will be propaganda on growth. Wrong deadpan CPI will enable calling price inflation as robust economic growth, as it has always been.  What will be different in several months is the much greater error, in grand divergence. The true CPI is likely to rise above 10% to 12% per annum. The official CPI from the USGovt stat fabrication labs is likely to report price inflation index at perhaps 4% by then. The error is likely to be about 7% to 8%, maybe more, a rise from the normal 5% deception. The USGovt will anxiously proclaim the QE2 program and the passage of time to have produced the long-awaited growth. It will be price inflation falsely labeled.

The big curve ball upcoming by spring or summer 2011 will be that price inflation will be called growth, even while job losses continue. Only when unemployment moves higher still, will the wake-up call be heard on the dangerous price inflation realized. When the contradiction in continued or worsened unemployment arrives, the public will see the growth as a mirage, or an affixed billboard from the propaganda machine. My belief is that by the end of 2011 or early 2012, the public will awaken to the reality of worse economic recession but with accompanied heavy price inflation. STAGFLATION WILL ARRIVE EARLY IN 2011 AND DELIVER A NASTY TOLL. It is already here, but will grow worse. By the end of 2011, it will be too late to fix anything. Systemic failure will have gathered far too much destructive momentum.

◄$$$ WITHOUT HESITATION, ALL USECONOMIC STATISTICS ARE PHONY DISTORTIONS OF REALITY TO PAINT A BRIGHTER PICTURE. THE G.D.P. GROWTH AND PRICE INFLATION ARE THE MOST FLAGRANT ABUSES, WHILE JOBLESS CLAIMS AND I.R.S. PAYROLL TAXES ARE THE MOST ACCURATE. $$$

The USEconomic statistics were once honest, way back in the 1980 decade. The Clinton & Rubin Admin is responsible for systematic deception and radically motivated data manipulation. The leading group for honest true statistics is the Shadow Govt Statistics, led by John Williams. They do tremendous work on a consistent basis, offering a glimpse of reality. The organized motivated dishonest statistical fraud continues unabated. Other statistics steeped in nonsensical exaggerations are Productivity, which is lifted in the same manner as the GDP to measure economic growth. Blame hedonic adjustments to quality improvements. The Non-Farm Jobs data contain constant deceptions. Blame seasonal adjustments that occur far too frequently, enabling prescribed lifts with motive. Blame the Birth-Death Model to fabricate the imaginary small business sector contributions. Retail sales contain more hidden deceptions, where the aggregate total usually exceeds the sum of the component parts. Blame seasonal adjustments and ignoring shutdown of retail chain stores.

TYPE

FALSE STAT

ACTUAL STAT

US Consumer Price Inflation

1.14%

8.48%

US Jobless Rate

9.6%

22.5%

US Gross Domestic Product

3.11%

-1.44%

M3 Money Supply

stopped

-3.36%

The USTreasury Bill 3-month yield contains grotesque distortions on the ultra-cheap price of money, a different animal altogether that changes the price of money on a systemic level. Blame the USFed direct interference that dictates the interest rate rather than a market equilibrium force. USFed money pricing is Politburo management of money by any other name. The USTreasury Note 10-year yield contains complementary distortion on a low long-term risk from inflationary erosion to value. Blame the Interest Rate Swap contracts that create a link to the FedFunds rate controlled directly by the USFed. The Treasury Inflation Protection Security (TIPS) contains a suppressed yield to hide the omnipresent inflation. Blame the direct purchase by the USFed to keep it low, much like an ice cube put to the thermometer. The USGovt and its many subservient agencies are the worst offenders at statistical distortion on the planet. They are worthy of Third World status with intellectual corruption. Their end product is economic destruction, a destination assured and well underway. The ignominious destination lies ahead.

◄$$$ HIGHER CRUDE OIL & FOOD COSTS WILL RAISE DANGEROUSLY THE COST STRUCTURE OF THE ENTIRE USECONOMY. FURTHERMORE, ANY RISE IN THE CHINESE YUAN CURRENCY EXCHANGE RATE WILL RESULT IN HIGHER CONSUMER PRICES IN A WIDE RANGE FROM ELECTRONICS TO HOUSEWARES. BY LATE 2011 OR EARLY 2012 THE HORRENDOUS STAGFLATION WILL BE RECOGNIZED IN FULL BLOOM, BUT IT WILL BE TOO LATE. $$$

Food costs are already up substantially in the last several months, as the pipeline is loaded with end product price hikes imminently. The oil cost is next for a shock. The public will awaken when crude oil hits $100 per barrel, and gasoline jumps 20% to 30% in price. Worse still, more price inflation will be coming from China. As the USGovt pressures China to permit its Yuan currency to revalue upward, a host of imported products from China will cost more in the USEconomy at retail stores. From home electronics, to kitchen appliances, to clothing, to bicycles, to housewares, prices will rise.

In my view, the achieved $1400 gold price goal will not raise alarm. However, the $100 crude oil will surely ring loud alarm bells, especially if the gasoline price makes a big jump by the next summer driving season. People identify with fuel costs more readily than the gold price, for sure. What the US financial networks are avoiding is the utterly basic consequence that QE2 assures a huge rise in the entire USEconomy cost structure, starting with food and extending easily to energy. The rise in food & energy prices will be dismissed as not being core. But the $4 price tag per gallon gasoline will finally result in widespread hue & cry, as in loud angry protests, with sharp criticism by the public for subsidizing big bank losses from the back door. They will revolt by saying that extra costs for fuel and food on the table are to pay for the bankers errors and fraud. The $100 crude oil price mark should arrive in time for Christmas, or early in the new year. The oil chart contains an evident reversal pattern that indicates a $102 price target. The upside breakout has already begun, with a move above the left side $85 resistance. The reaction will surely be loud criticism of the QE2 program to monetize bonds, since the direct consequence is a higher cost structure that will be easy to recognize. Food prices have already risen substantially at the base level, whereas energy prices are next imminently.

 

It bears repeating: The big curve ball upcoming by spring or summer 2011 will be that price inflation will be called growth, even while job losses continue. Only when unemployment moves higher still, will the wake-up call be heard on the dangerous price inflation realized. When the contradiction in continued or worsened unemployment arrives, the public will see the growth as a mirage, or an affixed billboard from the propaganda machine. My belief is that by the end of 2011 or early 2012, the public will awaken to the reality of worse economic recession but with accompanied heavy price inflation. STAGFLATION WILL ARRIVE EARLY IN 2011 AND DELIVER A NASTY TOLL. It is already here, but will grow worse. By the end of 2011, it will be too late to fix anything. Systemic failure will have gathered far too much destructive momentum.

◄$$$ FOOD PRICE INFLATION IS ON THE VERGE OF ARRIVAL AT THE STORE SHELVES AND RESTAURANT MENUS. ENORMOUS COMMODITY PRICE INCREASES HAVE BEEN LOGGED IN THE PAST TWO MONTHS ALONE. THE PIPELINE AWAITS VERY LARGE PRICE INCREASES AT THE SUPERMARKETS AND EATERIES, IN A FULL SPECTRUM. $$$

The National Inflation Association has come out with a report and forecast. Its president Gerard Adams believes food price inflation will become the foremost national crisis in 2011. He believes that making mortgage payments for citizens will fall as a priority in the minds of all Americans. The NIA projections of future US food price increases are direct consequences of the massive monetary inflation being created by the planned $900 billion Quantitative Easing by the US Federal Reserve. Recall that USFed Chairman Bernanke actually believes the Printing Pre$$ can be put to work at zero cost. The Jackass disagrees, and claims broad powerful violent monetary growth carries a very heavy cost to the USEconomy, and probably its ultimate ruin. Bernanke has yet to be correct as much of anything since the financial crisis began. Far too many of the Jackass systemic ruin forecasts have come true. Beware of the coming powerful price inflation episode, which will make for a rising cost structure to households and business alike. Adams warns that the the currency crisis could soon turn into hyper-inflation producing a complete collapse of the society. The fabric of US society has been strained in the last two years. It will be wrecked in the next two years.

Adams wrote, "For every economic problem the US government tries to solve, it always creates two or three much larger catastrophes in the process. Just like we predicted this past December, the USdollar index bounced in early 2010 and has been in free-fall ever since. Bernanke's QE2 will likely accelerate this free-fall into a complete USdollar rout." Base supplier costs of food items have risen in a staggering manner. The NIA report highlights points out how cotton has risen by 54%, corn by 29%, soybeans by 22%, orange juice by 17%, and sugar by 51% during the months of September and October alone. Next on the supermarket aisles will come extreme price hikes as a direct result of these huge commodity supply line price increases. They have yet to make their way into American grocery stores because producers have been reluctant to pass these price increases along to the consumer. As corporate profit margins vanish, that will change, and change fast, if they wish to remain in business. NIA expects all retailers to soon raise food prices at the same time, in big jumps, and soon, like before the holiday shopping season. Watch to see how price factors are a major topic of public and media discussion in the next couple months. See the NIA special US food price projection report (CLICK HERE). The USDept Agriculture last week cut estimates of US corn yields for a third successive month, forecasted record high soybean exports to China, but warned of the slimmest cotton inventory since 1925. Higher prices are almost uniformly expected, from shirts to towels to jockey shorts. The USGovt has been regularly distorting the farm inventory data for two years, a typical suppressive move that removed the alert. The Hat Trick Letter reported the deception in 2009.

Two retail restaurant chains have been making public statements about the commodity food price pipeline. The Intl House of Pancakes (IHOP) must contend with the fast rising cost of wheat, butter, orange juice, and coffee. They claim to have formed a buyer's coop consortium to help reduce the contract supply price through high volume purchases. That is the Wal-Mart model. Appleby's Restaurants have also openly discussed their fast rising costs. The coop concept will work for a limited time, then come broad price increases.

◄$$$ THE USMONEY SUPPLY CONTINUES TO HURTLE DOWNWARD. DESPITE A SLIGHT UPTURN, IT FELL BY 3.4% IN OCTOBER. THE USECONOMIC RECESSION IS BOTH IN A TIGHT DOWNWARD SPIRAL AND UNRECOGNIZED. THE CONTINUED JOB LOSS IS THE HINT, BUT IT IS MINIMIZED. THE AGGREGATE MONETARY AND CREDIT DATA PAINT A DISMAL PICTURE, WHERE THE ONLY CONCEIVABLE OUTCOME IS CONTINUED POWERFUL RECESSION. IF COST INFLATION COMES ON SCHEDULE, THE ABSENT INCOME GROWTH WILL CREATE THE PERFECT STORM FOR A VICIOUS STAGFLATION AT BEST, AND INFLATIONARY RECESSION AT WORST. EXPECT THE WORST. $$$

On November 3rd, the Federal Open Market Committee announced plans to monetize $900 billion of USTreasurys and mortgage bonds. The actual breakdown is within their latitude of choice, as they prefer, outside the meddling hands and critical voices in the USCongress. The USFed will buy enough USTreasury Notes through mid-2011 to cover almost the total anticipated borrowing needs of the USGovt for the next eight months. That reeks of pure USGovt debt monetization, Banana Republic style. With growing outcry from foreign creditors, they must fear privately the missing external investment to fund the USGovt operations, the vast internal black hole covered costs (see Wall Street generally, AIG, Fannie Mae & Freddie Mac) and the endless costly war. John Williams of the Shadow Govt Statistics believes the QE2 action was probably aimed at trying to interrupt an intensifying systemic liquidity crisis. It has been smoldering for the last two years, never extinguished as he insists. The recent mortgage foreclosure controversy has in my view shown up in severe illiquidity within credit management operations. The credit crisis of late summer 2008 leading up to the Lehman Brothers failure (kill job) has returned, and been re-kindled, re-ignited in a nasty economic environment gripped by turmoil.

The SGS-Ongoing M3 Money Supply index continues to show year-over-year contraction. The M3 is down 3.4% in October from last year. Although the decline has narrowed, from a minor slowdown month-to-month, it has powerful momentum and impact on the USEconomy. The powerful stubborn recession continues, and will intensify. The indication remains a backdrop of ongoing systemic instability, particularly in the banking system. Bank lending to consumers and businesses remains abysmal, more worrisome aggregate data. With commercial paper outstanding, more shrinkage has come, almost at the lowest volume in decades.

With non-financial outstanding credit, as seen in commercial & industrial credit, the decline has been for a full year. This is a frightening development, and a full fledged confirmation of USEconomic recession. Credit flow is down strongly, partly because of the new wave of foreclosure fraud impact, but mainly because of a deeply unstable banking system. Better stated, more accurately stated, the US banking system at the head is not only corrupt, fraud-ridden, but insolvent and caught in a death spiral. So the USFed launched its new QE2 program, on a hope and a prayer. Many thanks for the great graphs by Shadow Govt Statistics.

 

Paul Kasriel is an excellent economist, from Northern Trust. He wrote, "I think that if the Fed desires a quicker pace of nominal GDP growth, the goal of QE2 should be to increase the quantity of the sum of Federal Reserve and commercial banking system credit. After all, why is it called quantitative easing if it does not involve quantities? The Federal Reserve has the unique ability to be able to create credit figuratively out of thin air. So does the commercial banking system, if the Fed provides the seed money. The ability to create credit out of thin air implies that the recipients of that credit can increase their current spending without any other entity in the economy having to cut back on its current spending. The Chart [below] shows that combined Federal Reserve and commercial banking system credit have recently contracted at an unprecedented rate. The rate of contraction is slowing. The goal of QE2 should be to get this credit aggregate growing. If $600 billion of securities purchases by the Fed does not result in growth in this credit aggregate, then the Fed could increase the quantity of its securities purchases." See the Paul Kasriel article entitled "They Just Don't Get It" on Financial Sense (CLICK HERE). He does not address the risks to generating greater quantities of asset purchases and credit, like a terrific rise in the entire cost structure. But great emphasis on points as to the motive for QE2.

◄$$$ THE USGOVT JOBS REPORT CLAIMED A SURPRISING JOBS GROWTH SPURT IN OCTOBER. IT WAS A WORK OF FICTION, USING SEASONAL ADJUSTMENT ALTERATIONS, THE USUAL SUSPECT. EVIDENCE IS EASY TO SHOW. THE HOUSEHOLD SURVEY PAINTED A PICTURE OF CONTINUED JOB LOSS IN A DISMAL SKEIN. $$$

The October Jobs Report has come, full of deception, claiming good tidings with some job growth. It continues to amaze me the lack of depth in the financial news networks. They do not bother to read past the headlines and initial paragraph, which are replete with propaganda. The rest of the story is left to experts like John Williams at Shadow Govt Statistics to decipher. Let's cover the news fabrication story. The phony Non-Farm Payrolls supposedly grew by 151 thousand with 159k from private sector, while the jobless rate at 9.6% still. Furthermore, upward revisions in the previous two months resulted in +110k adjustments. What good tidings! Cause only to celebrate continued deception. The breakdown in that claimed growth came from retail +28k, health care +24k, temporary workers +35k, construction +5k, and food service +24k, with losses in government -8k and manufacturing -7k. Any revival in retail would be a tragic return to consumption patterns. The true clue is a fall in manufacturing, the lifeblood spine of an economy.

The deception analysis must begin with the hokey Birth-Death Model additions, which totaled +61k in October and +115k in August. They are based in fiction and dreams. See the Bureau of Labor Statistics admissions to statistical fraud (CLICK HERE). This model purports to estimate the overlooked small business growth that is not monitored in their shabby sampling plan. Small business is in fast retreat, the reality. The controversial model is an 11-th order auto-regressive integrated moving average time series model with no legitimacy whatsoever. The primary device used to deceive, again deployed with the October data, is seasonal adjustment. At Staples HQ from 1996 to 2000, the Jackass was in charge of seasonality maintenance. To maintain integrity, the coefficients must be updated no more often than once every two to three years. The Bureau of Labor Statistics alters their adjustment factors each month, to suit their needs, to deceive, to support an agenda. The public has no concept of mathematical ingenuity.

The Shadow Govt Statistics (SGS) gave a great summary. They wrote, "Of the major significance, though, those large revisions and the October gain largely were the result of seasonal adjustment gimmicks. They were not reflected in the underlying unadjusted numbers. As to the U.3 unemployment rate, it held once again at 9.6%, as 8700 unemployed shy of rounding up to 9.7%. At issue with the payroll employment data is the use of concurrent seasonal factor adjustments, where the current and recent seasonal adjustment factors are created and changed on a monthly basis. The use of this process enables the Bureau of Labor Statistics (BLS) to report almost anything desired in terms of monthly payroll change. In general, seasonal adjustments are used to redistribute recurring patterns of employment activity, such as seen with the school year or holiday shopping periods, so that the adjusted monthly changes tend to reflect economic changes as opposed to just the [structural] variations in employment activity. Key to the entire seasonal adjustment concept is that the total year's activity remains the same, whether adjusted or unadjusted. The adjustments just shift and rebalance activity between certain months. If the aggregated levels of adjusted and unadjusted activity were different over a year, then the adjustments inappropriately would be increasing or decreasing the reported level of actual annual activity. Such no longer is the case. While touted by the BLS as the more accurate approach to seasonally adjusting data, the concurrent adjustment process can distort the annual reporting and, as happened in today's payroll reporting, it can allow for jobs creation solely from seasonal factor adjustments, without regard to underlying reporting."

Take special note of the last point above. This was the verification step done at Staples HQ. The raw jobs data must provide a nearly exact annual total as the adjusted annual total, except for very minor differences impossible to make zero. If not comparable to negligible rounding error, then they are loaded with error, enough to undermine integrity. The USGovt jobs data do not satisfy annual sanity checks. They fail. They are deceptive from a constant chronic illegitimate adjustment process to suit their political needs. A phantom 200 thousand jobs were created, with no bearing on reality. Williams at SGS pointed out that the +151k for October would have been on the order of a 50k job loss for October, without beneficial adjustment. SGS also pointed out that the +166k jobs revision for August and September combined would have been a measly +32k revision for September and an actual -1000 revision for August, in the world of reality. The new jobs came largely from a recasting of the monthly seasonal adjustment factors, in his words.

The annual aggregates provide added evidence to charge statistical fraud. Just one month ago, the 12-month running total from Sept 2009 to Sept 2010 was nearly equal, as they should be. The 12-month running total from Oct 2009 to Oct 2010 was also nearly equal. Not any longer, not after convenient seasonal adjustments that occur too often. As of the October reporting, those September numbers changed respectively to a seasonally adjusted gain of 454k versus an unadjusted 353k gain, while the period from October 2009 to October 2010 showed a seasonally adjusted 829k gain versus an unadjusted 626k gain. The USGovt labrats at the BLS changed the 12-month running totals so that they no long coincide. SGS concluded, "Therefore, the BLS engaged in creative accounting to produce roughly 200k reported jobs from nothing more than the tweaking of seasonal adjustment factors." This is not calculus or advanced mathematics like quantum mechanics, but basic arithmetic.

Furthermore, the Household Survey went in the opposite direction for October. When put on the comparable timeframe footing to the payroll report, the more justifiable Household report showed a 505k decline in October employment, the steepest decline of the year. The labor force plunged by 254k jobs. The participation rate fell from 64.7% in September to 64.5%, now at the lowest level since November 1984. That is a contradiction. The unemployment rate would have jumped above the 10% level last month, if not for the reduction labor force. The level of unemployment rose 76k in October, the second rise in the past three months. While the BLS (BS) Non-Farm Reports offered that 151k new jobs were created on a net basis, the Household survey found that 124k full-time jobs vanished in October, making for a five month streak. During that stretch, a hefty 1.1 million full-time posts disappeared, replaced in part by 690k part-time workers. David Rosenberg concluded, "The Household survey is consistent with an economy still mired in deep malaise if not contraction. So which survey is correct? Hard to say. Historically, only 5% of the time do the Household survey and Payroll survey diverge in any given month to this extent, and usually it is the former that has the story right. Time will tell." See the Business Insider article (CLICK HERE). He said the Household report is more valid when they do not agree. The USGovt controls the Payroll report, and therefore prefers its message.

◄$$$ THE STEADY JOBLESS CLAIMS DEMONSTRATE STRONG EVIDENCE OF A CONTINUED USECONOMIC RECESSION, AND CONTRADICT THE PROPAGANDA OF EXPANDING JOBS. THIS IS SO SIMPLE. $$$

Job growth never occurs when almost half a million jobs are being lost at the margin each and every week. To believe otherwise is an exercise in stupidity, gullibility, or deception. The raw untreated jobless claims from aggregate state unemployment insurance offices, with no seasonal adjustment done, is the most plain vanilla statistics in existence, next to the federal income tax withholdings. No evidence exists of any recovery in the USEconomy or labor market. The Univ Michigan consumer sentiment index is a direct echo of the labor market and mortgage delinquency & default situation. The index fell to 67.7 in October, from a 68.2 reading in September.

The situation is so bad, and so dicey that the Indianapolis unemployment offices will be adding armed guards when the early December deadline arrives. That is when thousands of Indiana residents will see their jobless insurance benefits end after the maximum 99-week limit. The decision was motivated to provide an extra level of protection for employees and clients. The addition of 36 armed guards will assist in keeping order during the upcoming expiration of the federal extensions, since many unemployed are feeling increased stress. See the Indy Channel article (CLICK HERE).

THIRD WORLD REALITIES

◄$$$ UNITED STATES DROPPED TO #22 ON THE BANANA REPUBLIC INDEX THAT RANKS THE MOST HONEST GOVERNMENTS. THE NATION IS LONGER HELD IN ANY PERCEPTIBLE PRESTIGE. $$$

Transparency International has come out with its list of leading nations, the least corrupt in their Corruption Perceptions Index. Citing the abuse of entrusted power for private gain, they dropped the United States to a rank of #22, behind Chile at #21. The leaders are Denmark and New Zealand, and the bottom is occupied by Somalia and Myanmar (formerly named Burma). Among American hemisphere neighbors, the US is trails Canada, Barbados, and Chile, but is ahead of Uruguay, Puerto Rico, Costa Rica, Dominica, Brazil, and Cuba. This is the lowest the United States has ever scored in the so-called Banana Republic index. Direct bearing comes from the loss of confidence in public institutions during by the financial crisis, the widespread corruption charges of major banks, as well as the flood of corporate influence peddling to both the USCongress and the no longer august US Supreme Court. The hardly prestigious position of #22 in no way empowers Treasury Secretary Tim Geithner to fly around Asia lecturing everyone else on principles and high standards of the American system. Corruption, fraud, embezzlement, insider trading, self-enrichment, and policy control have become the national political and business credo!! See the DW-World article (CLICK HERE).

◄$$$ FOOD STAMP ROLLS GREW AGAIN TO A NEW RECORD HIGH. THE BANKER WELFARE THAT DOMINATES USGOVT POLIC DOES NOT REACH THE PEOPLE, WHO ARE GROWING POORER BY THE MONTH. THE MARCH TO THE THIRD WORLD CONTINUES WITHOUT PAUSE OR INTERRUPTION. ONE OF THE LARGEST RECENT IMPETUS STEPS TOWARD POVERTY WAS THE INVESTMENT IN CHINESE INDUSTRY THAT ENABLED ITS RENAISSANCE. THE CHINESE PROGRESS CAME WITH A QUICK BOOT OF THE UNITED STATES ONTO A PATH LEADING TO THE THIRD WORLD, AS DEBT REPLACED INCOME. $$$

The latest USDept Agriculture update on the food stamp program showed poverty deepening. The number receiving assistance grew by over half a million in August, hitting an all time high of 42.4 million people. One in 7.3 Americans receives food stamps!! The August level is 17% above the level a year ago, and up 58.5% from August 2007. A fast rampup in poverty has hit the nation. The department forecasts that enrollment in the food stamp program will exceed 43 million Americans in 2011. Sadly, the coupons will purchase less and less as food prices rise. Resentment is growing for banker welfare as a result of USGovt and USFed generosity to Wall Street and corporate insiders, and almost nobody else. An astonishing 21.1% of WashingtonDC residents collected food stamp assistance in August. Wealth distributed from the USGovt center is surely walled off from the unwashed citizens in the nation's capital. Mississippi with 20.1% of residents, and Tennessee with 20.0% filled out the top states for such poverty. Idaho posted the largest increase in recipients in the past year, but their rolls are few at 211,883 in number. The average benefit per person nationwide was $133.90 in August. See the Zero Hedge article for more detai ls (CLICK HERE). How is the US and Western investment decision to invest heavily in Chinese industrial expansion looking now? The Hat Trick Letter conclusion was filled with dire warnings in 2004, 2005, 2006, and 2007, making the case in forecasts for both heated trade war and huge foreign ownership of USTBonds enough to jeopardize US national sovereignty. It is actually worse than stated, since systemic failure threatens the United States. Poverty is the main hallmark of a Third World nation.

The march to the Third World for America will be painful. It is well along in its foundation and momentum. Peter Grandich has assembled a long list of ugly national data points that relate to wealth, education, and economic details. A few stuck out, shown below. The effect will be much more than simply bridges or pipelines in need of repair. The effects will be economic, a profound decline in the standard of living, widespread shortages, paltry pensions, and deep poverty. See the Grandich Letter article (CLICK HERE).

  • Ten years ago, the United States was ranked #1 in average wealth per adult. In 2010, the United States has fallen to #7.
  • The United States once had the highest proportion of young adults with post-secondary degrees in the world. Today, the US has fallen to #12. American 15-year-olds do not even rank in the top half of all industrial nations when it comes to math or science literacy.
  • In 2001, the United States ranked #4 in the world in per capita broadband Internet use. Today it ranks #15.
  • According to a new study conducted by Thompson Reuters, China could become the global leader in patent filings by year 2011.
  • The United States has lost approximately 42,400 factories since 2001. Approximately 75% of those factories employed at least 500 workers while they were still in operation. The US has lost a staggering 32% of its manufacturing jobs since the year 2000.
  • In 1959, manufacturing represented 28% of all US economic output. In 2008, it represented only 11.5%.
  • The US trade deficit is running about $40 or $50 billion per month in 2010. That means that by the end of the year approximately half of $1 trillion will have left the United States permanently in a capital drain.
  • Between 2000 and 2009, the American trade deficit with China increased 4-fold.
  • Median household income in the US declined from $51,726 in 2008 to $50,221 in 2009, to make for the second yearly decline in a row.
  • The United States has the third worst poverty rate among the advanced nations tracked by the Organization for Economic Cooperation & Development.

◄$$$ MORE HARD FACTS ABOUT THE UNITED STATES REFER TO INEQUITY AND ECONOMIC HARDSHIP. THE IMBALANCES AND DISPARITIES CANNOT BE MASSAGED. THE NATION IS TWISTED BEYOND RECOGNITION, HURTLING TOWARD A CLIMAX OF CRISIS. THE DATA POINTS READ LIKE A TORNADO PUT TO PAPER. $$$

  • For Americans, 61% live paycheck to paycheck in managing monthly finances, up from 49% in 2008 and 43% in 2007. The numbers are similar in Canada.
  • Half of Americans own only 2.5% of the nation's wealth, but one third of the entire wealth is owned by the top 1% elite.
  • In 1950, the paycheck size comparison between executive and average worker had a 30:1 ratio. Since the year 2000, it has exploded to over 300:1 in the ratio.
  • A shocking 43% of Americans have less than $10,000 saved for retirement.
  • In 2008, the World Economic Forum rated Canada as #1 banking system in the world. The United States ranked right behind Namibia.
  • In February 2010, there were 5.5 unemployed Americans for every job opening.
  • In the Central Valley of California, 1 of 16 homes is in some phase of foreclosure.
  • US banks repossessed almost 258,000 homes in 1Q2010, a 35% jump from 1Q2009.
  • At the end of 2009, over 24% of all homes with mortgages in the United States were underwater, with the mortgage balance exceeding the current market value of the home.
  • If only the minimum credit card payment is made every month, a $6000 credit card bill ends up costing $30,000.
  • Approximately 21% of all children in the United States are living below the poverty line in 2010, the highest rate in 20 years.
  • In 2010, the USGovt plans to issue almost as much new debt as the rest of the governments of the world combined.
  • As of February 2009, the motor vehicle assembly and parts industry had 111,500 employees at work, down 37% from its peak in 2001.
  • For the first time in US history, banks own a greater share of residential housing net worth in the United States than all individual Americans put together.

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