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

* Intro Monetary Fragments
* American Failure & Isolation
* USTreasurys at the Brink
* Defense of the USDollar
* Escape from USDollar
* Banks At War Internally


HAT TRICK LETTER
Issue #115
Jim Willie CB, 
“the Golden Jackass”
16 October 2013

QUOTES ON MONEY

"They [United States] are living beyond their means and shifting a part of the weight of their problems to the world economy. They are living like parasites off the global economy and their monopoly of the dollar. If [in America] there is a systemic malfunction, this will affect everyone. Countries like Russia and China hold a significant part of their reserves in American securities. There should be other reserve currencies." ~ Vladimir Putin (2011)

"The United States and global economy may have to get used to financially repressive, and therefore low policy rates for decades to come. Right now the market and the Fed forecasts expect Fed Funds to be one percent higher by late 2015 and one percent higher still by December 2016. Bet against that." ~ Bill Gross (PIMCO, who comprehends ZIRP Forever, but might not anticipate QE to Infinity)

"Non-crisis QE should be thought of as a mechanism to short circuit normal (financial and economic) system operations, and a particularly dangerous one at that. Instead of credit expansion and more typical economic processes feeding into higher investment, incomes, corporate earnings, and wealth creation, the Fed moved to bypass the economy and inject unprecedented liquidity directly to spur risk-taking and inflated securities markets. Injecting liquidity into already overheated speculative markets is tantamount to QE as rocket fuel. It both inflates securities prices directly, while also heavily incentivizes risk-taking and speculative leveraging. Couple rocket fuel QE with transparency, forward guidance, and a promise to backstop markets in the event of a tightening of financial conditions, and you have progressed all the way to reckless monetary policy." ~ Doug Noland (of Prudent Bear)

"Such stealth transfer of wealth enabled and facilitated by central bank policies are not only economically unsustainable, they are reprehensively immoral." ~ Stephen Roach

"The United States is an exceptional country right now. We are the largest debtor nation in world history. No country has ever has ever gotten itself this deep in debt, and we are going to pay the price down the road." ~ Jim Rogers

"When the Zero Interest Rate Pollicy was introduced, all financial models became useless. When Quantitative Easing was introduced with massive bond monetization purchases, the clock started on systemic failure. The entire financial and economic systems have grown fully dependent upon the USFed as a money pump. Accidents will happen. Insolvency is throughout the system. The central banks are systematically killing capital, while talking about stimulus. Grand events toward stages of collapse are coming and probably soon from the diminishing capital base which few economists even realize, since badly trained." ~ the Jackass

"If it were positive to take interest rates into negative territory, I would be voting for that." ~ Janet Yellen (March 2013, expect no change in monetary policy direction)

"It is important to recognize that the financial crisis generated significant headwinds that are only slowly abating. We must push against these headwinds forcefully to best achieve our objectives." ~ William Dudley (New York Fed head, justifying higher future QE bond purchase volume, the Jackass forecast, six years after the NYFed head failed to recognize the mortgage bond problem)

"Even in one of the wealthiest parts of the world, there is a great deal of foreclosure activity. Now a great deal of people who are fortunate to own their own houses, owe more on them than the houses are worth in the present market. That has all changed in the last eight years. The disparity between rich people and poor people in America has increased dramatically since when we started. The Middle Class has become more like poor people than they were 30 years ago. So I do not think it is getting any better." ~ Jimmy Carter (former US President, and half brother to John F Kennedy and Robert F Kennedy)

"In order to honor the fallen soldiers who are not to receive death benefits from the US Government shutdown, Hagel announced that the families can keep the 100 lbs of heroin in each soldier coffin that returns home. Now that is what we call a million dollar wound." ~ Anonymous

## INTRO MONETARY FRAGMENTS

◄$$$ THE YELLEN POSITION ON MONETARY POLICY SHOULD BE CLEAR. IT WILL SHOW NO CHANGE FROM THE BERNANKE FED. YELLEN IS A FREE MONEY ADVOCATE AND HAS URGED EXTREME MEASURES LIKE NEGATIVE INTEREST RATES WHILE SUPPORTING MASSIVE BOND MONETIZATION. EXPECT A STEADY HAND ON THE SAME DESTRUCTIVE COURSE. THE YELLEN FED WILL PRINT MONEY FOREVER TO CREATE JOBS. HER PAST SHOWS SEVERAL CONFRONTATIONS AGAINST BAD POLICY, ALL PROVING HER TO BE CORRECT. SHE WILL SERVE AS A BAGHOLDER AT A LATE STAGE, WITH NO OPTION TO DEPART FROM THE CURRENT MONETARY POLICY OF ZERO BOUND RATES FOREVER AND BOND MONETIZATION TO INFINITY. $$$

In a speech given in March 2013 before the National Assn for Business Economics Policy Conference, Yellen made the absurd statement, "If it were positive to take interest rates into negative territory, I would be voting for that." One is left to wonder how it would be decided, and by whom, that doing so would be positive, meaning to have benefit. Yellen has a solid career resume, if credit is given to the defenders of the current system. She holds the post of Vice Chair of the Board of Governors of the Federal Reserve System. Previously she served as head of the San Francisco Fed, and as head of the White House Council of Economic Advisers in the Clinton Admin. She is a Professor Emerita at the Berkeley Haas School of Business at the Univ of California. She continues the pedigree strain common to the USFed Chairman position over the last two decades, an ethnic syndicate job requirement methinks.

Yellen sees nothing dangerous, destructive, or harmful in the current Quantitative Easing initiatives held in place by the USFed. She pointed to potential costs of its asset purchases, which need to be monitored over time. She does not see anything that would lead her to advocate a curtailment of our purchase program. In other words, she sees no capital destruction effect from a rising cost structure in response to the extreme USDollar debasement at work in a corrosive manner. She errantly believes the ZIRP & QE policy will help foster a stronger recovery and keep inflation close to the longer-term target. Neither concept is correct. She cites vague policy risks, but does not elaborate. Doing so would surely cause hot debate, thus silence to be heard. She acknowledges the high cost that unemployed workers and their families are paying in this disappointingly slow recovery. She concluded, "There is the risk of longer-term damage to the labor market and the economy's productive capacity. At present, I view the balance of risks as still calling for a highly accommodative monetary policy to support a stronger recovery and more-rapid growth in employment." Hence, the current status noted, but not the risk of aggravation due to the USFed policy itself. Risk to productive capacity seems close to admission of capital destruction. See the Federal Reserve website for a Yellen speech (CLICK HERE).

The consensus is that a Yellen Fed will be looser with amplified free money and for a longer period. Any new USFed has no alternative, or else sudden collapse. To promise of continued zero bound with heavy bond monetization until the USEconomy recovers is a promise of its continuation until the systemic failure. The banking policy masters do not recognize or discuss the deep capital destruction in reaction to constantly debased currency. The consensus is that the FOMC will continue to print money until the USEconomy creates enough jobs to reignite wage pressures and inflation, regardless of asset bubbles, or even collateral damage along the way. No USFed chief in history has been better qualified than Yellen, ironically, as far as being a veteran system wonk. In glaring contrast, Alan Greenspan was a political speech writer for Richard Nixon. Sir Alan never truly earned a PhD in Economics, his parchment being an honorary degree from Columbia Univ. Greenspan did however author some excellent essays on the benefits of gold and its proper role at the center of the financial system, now proved correct.

To her credit, Yellen confronted Greenspan in 1996, opposing his policy that caused irrational exuberrance. She pushed for for pre-emptive rate rises to choke inflation and wean the economy off cheap credit. She was correct, but was overruled by Mr Magoo. The Greenspan Fed then began to make a series of fatal errors, leading to the 2000 tech telecom bubble and bust, followed by the housing & mortgage bubble and bust, both under the supposedly brilliant Greenspan watch. He was a bubble puffer and wrecking ball, deemed brilliant for his obfuscation and calm hand during the crises he himself created. The US nation became addicted to ever lower real interest rates. Nobody called her a dove in the 1990 decade. She is a dove by requirement now, since the system is broken and fully dependent on an even more massive torrent of free money.

A decade later, Yellen went on to oppose New York Fed chief William Dudley in December 2007 over the risks of subprime mortgage defaults. Thus she confronted the Goldman Sachs machine (Dudley is from GSax). Yellen is on record as being on the other side during those crucial months before the subprime housing crash. She tried to alert the Board toward the danger of a chain reaction through the shadow banking system. Ben Bernanke and the FOMC majority scoffed at her firmly stated admonitions that the subprime debacle was the tip of an iceberg. They over-ruled her prudent wisdom. Yellen said, "I feel the presence of a 600-pound gorilla in the room, and that is the housing sector. The risk for further significant deterioration, with house prices falling and mortgage delinquencies rising, causes me appreciable angst." The warning was given in June 2007, a full 15 months before the storm reached climax. During that time the Jackass was also making even more dire warnings. The Jackass warned of a chain reaction that would render the US banking system insolvent as a result, which indeed happened.

In the clash with Dudley directly, Yellen told him in no uncertain terms that he was supposed to be the official with his finger on the market pulse. She said, "The possibilities of a credit crunch developing and of the economy slipping into a recession seem all too real. At the time of our last meeting, I held out hope that the financial turmoil would gradually ebb and the economy might escape without serious damage. Subsequent developments have severely shaken that belief." She was absolutely correct again. The USEconomy was already in recession by then. As footnote, Robert Hetzel of the Richmond Fed wrote a powerful book entitled "The Great Recession" which accused the USFed itself of being the chief cause of the financial disaster that reached climax in 2008. He cited a far too tight FOMC which let the M2 money supply implode in early 2008. The disasters at Lehman, AIG, and Fannie Mae followed. See the UK Telegraph article by Ambrose (CLICK HERE).

Not to be left out, exiting Congressman Ron Paul offered his opinion that Yellen at the USFed post would lead to a grim future with no change in course, since the brethren are Keynesians one and all. He foresees reduced incomes, falling standard of living, and weakened USDollar puchase power. Rep Paul does not give Yellen any credit for opposing both Greenspan and Dudley in past confrontations. The irony is that Yellen will preside over the systemic failure that she herself warned about. See the Zero Hedge article (CLICK HERE). The USFed under Greenspan and Bernanke has a history of creating bubbles and then pricking them, with a major role in every crisis. The ongoing endless perpetual ZIRP & QE is their legacy, which has placed a noose around the neck of the nation. Systemic failure, dead ahead!!

The Jackass view is simple. Janet Yellen is set to take the bagholder post as the new USFed chair. She is stuck in the current monetary policy with no option to alter the course toward catastrophe. She has no workable options. She cannot stop the Zero Interest Rate Policy, or else face an implosion to the USEconomy from rising rates. She cannot stop the Quantitative Easing policy either, or else face an implosion to the USTreasury Bond market from unwinding carry trade, diversification among foreign bond holders, and the lit fuse of derivatives. Yellen is bound to continue the amplified free money course, despite the growing risks and certain capital destruction. A key question is whether Yellen will slip in a comment that ZIRP & QE kills capital and thus inhibits the delusional recovery, the requirement to end the accommodative policy. The better question is whether Yellen submits well to nasty deforming caricatures in the press. Of course she will. We humans are all funny looking.

◄$$$ THE NEW HIGH SPEED CHINESE RAILWAY WILL SERVE THE ASEAN NATION NEEDS. THE ASIANS ARE BUSY BUILDING ECONOMIES. BY CONTRAST THE UNITED STATES IS BUSY WITH WAR AND BOND FRAUD AMIDST POLITICAL STALEMATE, WHILE THE BANKS ARE DEPENDENT UPON NARCOTIC MONEY. EAST IS BUSY BUILDING THE AVENUES OF COMMERCE. WEST IS BUSY OVERSEEING THE VAST PROFOUND DECAY. THE CONTRAST IS STARK. $$$

China deploys discreet ASEAN diplomacy by means of constructing a high speed railway which will connect the many nations. The US by contrast wages war, urges regime overthrow, manages its financial collapse, funds military weapon contracts, argues on politics while budgets are in deadlock, all the while engaged in incredibly deep narcotics business that the New York banks are fully dependent upon. The Chinese and Asian partners are busy building the infrastructure. China will forge new stronger ties, and create leadership, by means of projects like the high speed railway. It will build relations and enable commerce. The US is winning new enemies even among the ranks of its allies.

To improve Chinese relationships with Southeast Asian nations, President Xi Jinping has encouraged Chinese enterprises to invest more money and resources in constructing the Pan-Asian High Speed Rail link. The line would run from the capital of south China's Yunnan province to the nation state of Singapore. Its construction has already begun between Kunming and Vientiane, the capital of Laos (pictured below). The construction of the second rail line between Bangkok and Nakhon Ratchasima province in Thailand will be finished next year. Through reconstructing the railway from Malaysia and Singapore, China would be able to connect itself with all the major members of ASEAN. For instance, the proposed 300-km link could reduce traveling times for passengers from Kuala Lumpur to Singapore from six hours to 90 minutes. In the future, this line will be connected to the counterparts in Thailand. The segments are coming together to eventually form a Pan-Asian high-speed rail link. The grand project is not lofty, but rather ambitious effective and real. The high speed rail lines have become a major way for China to exert its influence on neighboring countries. Despite serious accidents like the 2011 Wenzhou train collision which killed 40 people, China is steaming ahead on pushing rail exports via these routes. Accidents are not just an Asian phenomenon. Check out Madrid two months ago. See the Want China Times article (CLICK HERE).

◄$$$ EVOLUTION OF THREE US-POLITICAL PARTIES IS POSSIBLE, AS THE REPUBLICANS RISK RUN TO SPLIT OFF A SEPARATE TEA PARTY. ELECTIONS IN ONE YEAR COULD PROVIDE A RECONSTRUCTION. $$$

The conflict over ObamaCare, the USGovt shutdown, and the debt ceiling is a pre-cursor to something potentially larger. The ground level conflict continues to be over taxes versus entitlements, whose polarized camps produce the stalemate. When the climax arrives in the next several weeks, the inner party divisions are sufficiently great to bring about some formal splits. The split of the Republican party into two factions is possible. See the oppositions internally. Inner conflict on one or two issues is normal. But the inner conflict is pervasive.

The United States as a nation is on the verge of the formation and formal establishment of a three-party system. If it comes to pass, it could have enormous implications. The results could be very enlightening, at the same time some changes could be profound. Consider that de-centralization would pick up. It would be good for the people on Main Street businesses, but bad for the banker cabal. Trust and confidence in the US financial structures would diminish rapidly. Refer to the USDollar currency and its USTreasury vehicle for banking reserves. The Cabal led by bankers would realize less power. The United States would be considered no different from Europe in being a financial wreck and basket case. Its debt finance would become problematic, like France, Italy, and Spain. The little man on the ground would be able to more easily distinguish who works for the business in question, and who works for the cabal.

Small private businesses could be big winners in the adjustment process, while the big corporations and multi-nationals could be losers. The 2014 Congress elections one year from November might be highly disruptive with the Tea party surprising to the upside. They seek a greater say in WashingtonDC policy matters. Finally, factor in corruption, bribery, threats, promise of network promotion, and more, the typical tactics to prevent a third party to be formed. See the PressTV article (CLICK HERE). Bear in mind that the Tea Party sold out and endorsed the continuation of Homeland Security with all the Patriot Act features that formally extinguish liberties. In the Jackass view, the Tea Party has already sold out but it could emerge with a bold purpose.

## AMERICAN FAILURE & ISOLATION

◄$$$ PERCEPTIONS ARE MANAGED DURING THE CHRONIC GLOBAL FINANCIAL CRISIS. THE BROAD COLLAPSE IS IN PROGRESS. CRISIS AVERTED IS THE EMPTY REFRAIN. PROPAGANDA SPINS. JIM GRANT CALLS THE USGOVT DEBT DEFAULT AS INEVITABLE, ONLY THE PATH UNCLEAR. UNLIMITED MONEY PRINTING LEADS TO A CERTAIN CLIMAX FAILURE. DAVID STOCKMAN EXPECTS A CATASTROPHE TO STRIKE, AS THE USFED TREATMENT LOSES ITS EFFECT. HE CALLS MONETARY CENTRAL PLANNING A FAILURE WITHOUT MENTION OF THE WORD POLITBURO.

KEITH BARRON DESCRIBED AN ENDLESS PROCESSION OF CRISES WITHOUT SOLUTION. HE EXPECTS THE USFED TO PRINT ENDLESSLY AND TO MONETIZE BONDS PERSISTENTLY AND DOGGEDLY. WHEN THE COLLPASE HITS, IT WILL BE ONE FOR THE AGES. THE PANICKY SCRAMBLE FOR GOLD WILL BE CLEAR AND DESPERATE, THE TRUE SAFE HAVEN. $$$

Once the debt ceiling is raised, Gold will crash as the crisis is averted. Yawn, how tiresome!! The propaganda is relentless, way off kilter, and totally false. A patch soon announced on USGovt budget and spending limit raised (???), crisis averted. The new USFed chair appointed, crisis averted. The DJIA stock index makes new highs, crisis averted. The QE4 is announced and volume doubles, crisis averted. German official gold will be repatriated (eventually), crisis averted. JPMorgan settles more bond and mortgage fraud, crisis averted. Basel III Rules installed (sort of), crisis averted. The Saudis reassure their love (cough cough) of America, crisis averted. The next G-20 Meeting adjourns (without outward revolt), crisis averted. The APEC meeting adjourns (with only a US snub) in Asia, crisis averted. The US-led Trans Pacific Partnership moves along (ignored by Asia), crisis averted. Goldman Sachs announces a profit (full of gimmicks), crisis averted. Homes sales do not fall off the cliff (recovery on course), crisis averted. Car sales are flat for the quarter (weather impaired), crisis averted. The sun rises, crisis averted. In the meantime, more Yuan Swap Facilities have been installed, gone global, a sign of the new Chinese eclipse of the USDollar in trade. The crisis continues to fester and screech. In the meantime, far off the radar, Congo smuggling resumes for the obscenely wealthy but ravaged nation. We carry on, over the cliff. Gold is set to advance to $7000 per ounce. It will be driven by the global rejection of the USDollar and new trade alternatives put in place, crisis averted if prepared with precious metals in the portfolio.

The bullshit lines fallen upon Jackass ears are endless. It used to be Second Half Economic Recovery. Then the Green Shoots. Then the Exit Strategy. Then ZIRP & QE were the saviours, the present day Bobsey Weimar Twins. Now it is Taper QE in four to six months. Focus is given to confidence, volatility, liquidity, uncertainty, and Too Big to Fail Banks. Focus should instead be given to insolvency, ruin of capital, absent solutions, certain systemic failure, and Big US Bank liquidation. Goebbels would be proud of his grafted descendent scions running the Nazi Nation from his post as Minister of Information.

Jim Grant calls America's debt default as inevitable. This Jackass forecast made in late 2008 is now becoming more obvious by the month, soon to be part of the financial landscape. See the Zero Hedge article (CLICK HERE). He believes extreme monetary disorder is coming to the world. He points to Bernanke, who seems to boast about learning from a reckless ongoing experiment, which is certain to result in complete and utter failure. Rabid creation of unconvertible currency never ends well, always in crisis climax. Ben is no student of history. Gold is an island of refuge, as central planning in progress has no prospect of success. The type of failure is uncertain, but price inflation is a likely outcome. Gold will serve well regardless of the horrendous outcome, an investment in monetary disorder. See the King World News interview (CLICK HERE).

Former Reagan Admin Budget Director David Stockman commented on the financial collapse in progress. He has always had a good grip on the reality. Stockman expects a catastrophe to strike, as the Bernanke Fed cobbles a string of excuses for delaying a resolution. The certain shattered confidence he warned about has already begun. The financial markets have lost their honest pricing, a critical element to a capitalist system. The music will stop and prices will adjust when the USFed actions have no further effect. Their only traction has been in rising costs. A unique historical failure is near. Stockman concluded, "There is every reason to believe that [the failure] will be outside the range of prior experience. Once it is clear that the Fed is out of ammunition, it is going to cause an even greater wave of panic than we had last time [in 2008]. The Fed is a ship of fools. They have enormous power over the entire financial system, not only domestically, but over the entire global system. It tells you why this doctrine of monetary central planning is so destructive and dangerous. No twelve people should be in a position to unleash this kind of turmoil." See the King World News interview (CLICK HERE).

Mining sector consultant Keith Barron warned of a monster collapse, one for the ages in his words. The United States is lurching from crisis to crisis, which occur much more frequently, like days apart or even hours apart. Asian nations are loading up on gold bullion, whose price has historically been well correlated with rising interest rates. Much more bad news is coming. He summarized in conclusion, saying "This has been my sentiment for a long time, the US economic situation is just too weak to taper [in reduced USFed bond purchases]. The Fed made a big mistake by telegraphing that they were going to taper. This sent interest rates higher and crippled the economy even further. The economy cannot handle higher interest rates. So the US government has to attempt to keep interest rates artificially low for as long as possible. The reality is that right now Western central planners are trying to hold off this collapse for as long as they can. When it finally comes, it will be a monster collapse. I have lived in countries when they have imploded, but this one will be particularly ugly. People had better make sure they are prepared because once it starts, it will be too late. This collapse will be one for the ages. You do not want to be scrambling during that chaos and trying to accumulate things like physical gold, because the system will be breaking down." The USFed through hyper monetary inflation has concealed the rot throughout the system, as Barron described. They cannot prevent the implosion, only delay it. The torch of global leadership will be passed from the US to China, an unstoppable event. He expects price inflation to pick up and fan the flames of panic as the crisis builds. See the King World News interviews (CLICK HERE and HERE).

The Voice commented on the collapse in progress. The leadership mantle worn by the United States is being removed. He never minces words. He wrote, "There is a lot more going than meets the eye. The Anglo-American camp is defacto finished, for all practical purposes. They cannot keep their house of cards and lies together any longer. Furthermore, the US they cannot keep the cash flow going from various operations. The wheels have come off. The BRICS nations are going to have to deal with India's economic implosion. If a big country has a small problem, then the rest of the world has a very big problem. It is not going to be pretty. We need to be very alert, since the smallest and most insignificant appearing incident might be the fuse that triggers an event driven scenario."

◄$$$ CHINA HAS BOLDLY CALLED FOR AN END TO THE DOLLAR RESERVE, AN END TO THE AMERICAN DOMINATED WORLD, AN END TO THE GLOBAL LEADERSHIP BY A FAILED AMERICAN CREW. A BRASH GALLANT CHALLENGE WAGED INDEED. THE USGOVT RESPONDS PRIMARILY WITH MORE PILES OF DEBT, MORE BANKING RULES HEAPED UPON FOREIGN NATIONS, MORE SUBTERFUGE, AND NEW MORE NOBEL WARS. $$$

The volume rises. The official Chinese news agency has called for the world to be de-Americanized, complaining that the destinies of people should not be left in the hands of a hypocritical nation with a dysfunctional government. The Xinhua news agency took the gloves off, kicked Uncle Sam in the groin, and spit in the USGovt face. They accused the United States of being a civilian slayer, guilty of prisoner torturer, and meddler in the affairs of sovereign nations. They called Pax Americana a failure on all fronts, without mentioning the Full Spectrum Dominance that ex-VP Cheney boasted of. More salt was thrown on wounds, as the inflammatory editorial statement read "As US politicians of both political parties are still shuffling back and forth between the White House and the Capitol Hill, without striking a viable deal to bring normality to the body politic they brag about, it is perhaps a good time for the befuddled world to start considering building a de-Americanized world. The cyclical stagnation in Washington for a viable bipartisan solution over a federal budget and an approval for raising debt ceiling has again left many nations' tremendous dollar assets in jeopardy and the international community highly agonised."

Xinhua mocked the US role of self-declared protector of the world. The Chinese in the last few years have regularly criticized the USGovt for policy direction that threatens to devalue its still growing FOREX reserve assets. Never before has Beijing spoken with such open challenge, calling for an end to the reign of King Dollar. See the Intl Business Times article (CLICK HERE). Beware that China might be orchestrating certain events toward an stuck technical USGovt debt default in order to enforce their agenda with USTreasury Bill redemption in a clever plan. They might have demanded the Obama Admin force a state of suspended debt animation that freezes the all-important REPO market. It is the life blood of financial system. The ulterior motives will be revealed, but the Jackass is busy in conjecture scenario analysis with EuroRaj.

◄$$$ UNITED STATES PROMINENCE IS DIM IN ASIA, SLOWLY VANISHING. THE NEW LEADERS IN ASIA ARE CHINA & RUSSIA, READY TO CARRY THE TORCH AND TO PROVIDE STRONG LEADERSHIP. THE US-LED DELEGATIONS WILL TAKE A BACK SEAT. THE MULTI-SWAP IS A REGIONAL CURRENCY SWAP IN LIEU OF THE YUAN SWAP FACILITY. MOST IMPORTANTLY, IT IS NOT USDOLLAR-BASED TRADE. IT IS BEING PROMOTED FOR GREATER REGIONAL STABILITY. ITS INSTALLMENT WILL CAST THE UNITED STATES INTO AN OBSCURE CORNER, WHERE IT CAN DEAL WITH ITS OWN RAPID DECAY. IRONICALLY, THE EMERGING MARKET NATIONS ARE STILL DEPENDENT UPON THE WESTERN FUNDS AND INCREASINGLY THE EASY MONEY FROM THE USFED SPIGOT. THEIR MARKETS ARE MORE STURDY THAN THE 1998 CRISIS, BUT STILL NOT MATURE. $$$

A common foreign currency reserve may be the next big goal among the collection of Eastern nations. They met at the Asia-Pacific Economic Cooperation meeting of finance ministers in Bali on September 20th. The US delegate, the foppish clown John Kerry, complete with reconstructed jawline from plastic surgery (better designed for lying), was relegated to an obscure corner, or in the closet. The Skull & Bones entry Kerry has no experience in global diplomacy, global finance, or global commerce. He had no role other than observer at the Bali gathering. The picture speaks volumes, never to have been seen decades ago during the American Empire zenith. Notice Kerry in the corner, with Putin in the center next to the Chinese and Brazilian leaders.

The APEC member nations have loosely defined the goal of establishing a common foreign currency reserve. It would be key to promoting regional financial stability. Its champion is the new Chinese Finance Minister Lou Jiwei. He said at the APEC conference that multi-lateral foreign exchange swap arrangements might be put in place to support economies facing challenges from external shocks. No additional details were offered, just a general project goal. The South Korean Finance Minister Hyun Oh-seok was quoted by The Wall Street Journal as saying the Chiang Mai Initiative is still highly important, best to strengthen it further. The initiative is a multi-lateral currency swap arrangement among APEC members along with China, Japan and South Korea. Together, these nations draw from a common foreign exchange reserve pool valued at $240 billion. The Yuan Swap Facility serves as the core on non-USD trade settlement. China is on trend to growing the ratio of its trade done in Yuan, currently over 16% of total volume expected to reach CNY 4 trillion in full year 2013. Expect the common currency reserve as extensions.

An expanded version of the Chiang Mai Initiative could work to promote regional financial stability among APEC members. Yi Gang, deputy governor of the People's Bank of China, claimed that China has signed currency swap agreements with ASEAN nations valued at over 1.4 trillion Chinese Yuan (=US$229 bn). Refer to the Assn of Southeast Asia Nations, a quasi trade zone. The China-centric financial developments continue apace. In the first week of October, President Xi Jinping announced a Yuan Swap Facility worth CNY 100 billion between China and Indonesia during his visit to the populous country (237 million people inhabiting 17 thousand islands). The facility will promote trade settlements in local currencies, with no USDollar settlement in trade. President Xi expressed a desire toward establishment of a bank among Asian countries to offer support on infrastructure construction. Its attention would be directed at ASEAN member countries. The multi-lateral currency swap mentioned by Chinese Finance Minister Lou could be considered as a source of funding for the infrastructure investment bank, a future pathway.

However, Luo Jiwei admitted that currency swaps among APEC members face challenges, such as coordination among more members with different policies. Despite cutting out the United States by removing the USDollar in trade settlement, the US is expected to participate indirectly. Luo said currency swaps among APEC members would require an operational mechanism influenced by the United States. The debt structure of the APEC nations is stronger than during the 1998 Asian Meltdown, as they boast deeper reserves and somewhat more mature financial markets.

Moodys Investor Service said in its latest report, "In the five years since the onset of the global financial crisis, the performance of the sovereign ratings of the members of APEC has, in general, been of stability and strength." The same report stated that APEC members face several new challenges centered on subdued economic outlook for developed markets, aggravated by weak demand for the region's exports. The renewed volatility in global capital markets also puts the region at risk. Ironically, the emerging markets are dependent upon the easy USFed monetary spigot. So the Taper Talk by Bernanke actually kicked emerging markets hard in the gut. Turning off the spigot or reducing it would bring about sudden severe financial desert conditions. The dependence upon hotmoney is still there. Although replete with wealth, these nations do not possess deep sturdy mechanisms, nor mature financial markets. See the China Daily article (CLICK HERE).

◄$$$ THE ISOLATION OF THE UNITED STATES CONTINUES, AS THE GLOBAL CORE INTERNET INSTITUTIONS ABANDON THE USGOVT GUIDANCE AND DOMINANCE. HACKING AND CENSORSHIP BY THE USGOVT AGENCIES MIGHT CONTINUE, BUT THE LEADERSHIP IS SHIFTING. $$$

In Montevideo Uruguay in early October, the Directors of all the major Internet organizations turned their back on the USGovt for its leadership. With striking unanimity, the organizations that actually develop and administer Internet standards and resources initiated a break with three decades of US dominance of Internet governance. Regard the initiative as further fallout from the NSA eavesdropping, the Snowden database rescue, and abrogation of liberties toward creation of the US Fascist State. The global awareness of USGovt agency hacking, all blamed on China and Iran, has worn thin and is widely understood and recognized. The hack signatures lie in evidence.

The individual organizations at the Uruguay assembly included ICANN, the Internet Engineering Task Force, the Internet Architecture Board, the World Wide Web Consortium, and the Internet Society. It was a complete sweep of all five of the regional Internet address registries. The agreement constituted an explicit rejection of the USDept Commerce unilateral oversight of ICANN through the IANA contract. It also indirectly attacks the US unilateral approach to the Affirmation of Commitments, the longstanding pact. The movement seeks new forms of multi-stakeholder oversight as a substitute for US oversight, although no detailed blueprint exists. The proper substitute for unilateral Commerce Department oversight, it was argued, was not multi-lateral political oversight, but an international agreement articulating clear rules. President Dilma Rousseff of Brazil is pursuing the next conference event to be held in April 2014, the site Rio de Janeiro. See the Internet Governance Organization website article (CLICK HERE).

◄$$$ THREE GRAVE ERRORS OF POLICY HAVE KILLED THE UNITED STATES AS A VIBRANT NATION FROM AN ECONOMIC STANDPOINT. THEY ARE RABID INFLATION, WORK OUTSOURCING, AND WAR AGGRESSION. THE FINAL PHASE WILL CENTER UPON GLOBAL ISOLATION AND USDOLLAR REJECTION. THE DESTINATION IS A ROCKY TUMBLE INTO THE DISORDER AND POVERTY, WITH SUPPLY SHORTAGES AND RAMPANT PRICE INFLATION. THE BITTER FRUIT OF ADOPTED FASCISM HAS BEEN ALIENATION, SOVEREIGN BOND RUIN, AND SYSTEMIC FAILURE WHICH WILL LEAD TO THE THIRD WORLD. $$$

Many are the official policy errors committed that have wrecked the United States. The focus here is on a few key major ruinous blunders. The powerful MONETARY INFLATION (1) has been the policy of the US for decades, with corrosive effect. It destroys capital and encourages asset bubbles, with a bust inevitable every time. The motive was to favor the investment bankers initially, then to foster the financial engineering self-destructive toolkit. The inflation kills capital on a regular and systematic basis, which weakened the USEconomy. At the same time, the US eagerly outsourced industry. The motive was to exploit the cheaper labor, but more importantly it was a reaction to the labor unions and environmental strictures that added to cost. In the late 1970 and full 1980 decade, the US bankers had not learned a way to prevent domestic price inflation. The OUTSOURCING MOVEMENT (2) weakened the USEconomy much more. It resulted in foreign income development but domestic income depletion. The entire USEconomy boasted of becoming a service economy, but that is a step down. The benefits of intellectual property development turned into a capital formation tool overseas.

Lastly the US has embraced a sick devotion and love of war. The projects were pushed by the military industrial complex, complete with security agency creation of enemies. Bribery in the US Senate paved the way with kickbacks. The security complex adopted a business model centered upon narcotics, while demanding war to serve as cover for the hidden contraband business. While capital formation builds an economy, war is a highly destructive element. The DESTRUCTIVE EFFECT OF WAR (3) was the third deadly blow delivered to the USEconomy. The income capability of the USEconomy is insufficient to service the debt. The rise of the housing & mortgage bubbles in the previous decade served as the last hurrah, the final chapter in a demented distorted destructive sequence. The United States is saddled with a gigantic USTreasury Bond bubble at this final stage, supported by a more gigantic derivative support structure. Both are in breakdown mode, the former visible, the latter hidden.

The results have been devastating, and will reach climax proportions. Foreign control of the USGovt debt has changed the decision processes in ways that are less concealed than in previous years. The GLOBAL ALIENATION from unilateral monetary policy has created anti-USDollar movements to remove it as global reserve currency. Their movements are as much based on survival as removal of a toxic paper cancer. The reaction to constant war footing and subterfuge is channneled into trade war dynamics and conflict with ally and enemy alike. The last few years have seen a climax with revealed BOND FRAUD & SOVEREIGN BOND RUIN. No solutions are forthcoming. The final phase has begun, seen in global isolation and USDollar rejection, observed in diversification away from USTreasury Bond, its redemption, and its removal from the global banking reserve system. At the same time, in progress is the decay and demise of the Petro-Dollar defacto standard. The FASCIST BUSINESS MODEL BITTER FRUIT comes from failure, to be manifested in price inflation, supply shortage, and deep disorder. The result will be profound price inflation from the currency problems, not directly from monetary inflation practices. The result will be broadbased supply shortages, focused on food at supermarkets, gasoline at service stations, and cash at ATM machines. The result will be systemic breakdown and USGovt debt default, as violence spreads across the nation.

THIRD WORLD is the destination, the game over, the outcome determined, the final acts playing out according to script. The US will slide into the Third World for its grave errors and submission to bank syndicate exploit. The debts are unmanageable and obscenely large, the political apparatus broken, the economic counsel set in place to support the bank syndicate. The dependence upon hyper monetary inflation to manage still rising trade deficits and government deficits will cause a deep despair and sense of an intractable situation, with no solution. War will be relied upon to a greater extent, except that the Modus Operandi is better understood by the global players, and thus easier to interrupt. Notice the block on the Syrian War.

## USTREASURYS AT THE BRINK

◄$$$ THE VOICE SPOKE OF DEBT DEFAULT AND SYSTEMIC CHANGE, ALL OMINOUS. THE FIAT PAPER CURRENCIES WILL BE THE MAIN VICTIMS. USTREASURY BOND FALLOUT UPON A DEFAULT WOULD BE TREMENDOUS, BROADBASED, AND SYSTEM CHANGING. THE CHANCE OF AN INTERNAL INTERVENTION GROWS BY THE MONTH AS CRISIS BUILDS. $$$

The following is shared from The Voice, a man of deep wisdom, experience, and connections. If the United States goes into technical default with the nearly $500 billion that come due this month in October, we shall see the entire global financial system implode. The USTreasury has a measly $30 billion cash reserve left in its booty to manage its affairs. It will be the Stalingrad of financial fields. The Boyz might have planned this very nicely. The timers are set and the escape route fixed. But suddenly a big garbage truck is blocking the final exit point. Escape becomes impossible. The timers cannot be defused. It is a classical Game Over scenario. The coming correction will be swift, powerful, and possibly horrifically brutal. What unfolds will happen quite differently from what many well informed people anticipate, even solid gold analysts. Humanity is at a crossroad of potential total annihilation, if a legitimate reset cannot launch a viable new beginning. The unfolding events in the Middle East and inside the United States will define how it all will end.

After Syria, the entire geopolitical chessboard changed completely, with the USGovt losing credibility and prestige in a swift stroke. As the crisis marches forward, inevitably we will see both the USDollar and the Euro currency collapse. What comes will arrive in four stages. 1) We shall see a sophisticated barter system ensure that trade continues. 2) We shall see the introduction of commodity backed money with precious metals at the core. 3) We shall see sanity return to establish prices for services, goods, and hard assets. 4) We unfortunately will also witness a multitude of humans perish in the foreseeable future from conflict of a hidden financial basis, from wars of aggresion to ensure supplies, and incited rebellions to remove unwanted governments and contracts. To be sure, Paradigm Change is a bitch. End of Voice comments. A Jackass footnote focuses on the effect of a USD and Euro breakdown, which in no way would lift in a big way other fiat paper currencies like the British Pound, the Japanese Yen, and Swiss Franc. They are all tainted and lashed together. Instead, the main USD & Euro breakdowns would lead to a massive rise in the Price of Gold (and Silver).

Kyle Bass, founder and principal of Hayman Capital Mgmt, offered a similar warning but more specifically directed. He warned that individual investors cannot protect themselves from missed USTBond coupon payments. In the same interview, he made a statement to express deep disappointment on JCPenney for their poor performance and excessive stock dilution. He also made a statement to express how Puerto Rico would affect the Muni Bond market in a situation that cannot avoid a climax soon. See the Zero Hedge article (CLICK HERE). For more details on Puerto Rico, see the Zero Hedge article (CLICK HERE).

Many people are losing faith in the US institutions, leadership, and apparatus to govern. Unfortunately, the true picture is overwhelmed by treason, which has become the norm nowadays at the USGovt helm, managed by Wall Street. Opposition to the treason is defined as terrorism and sedition, punishable by accidental death, child pornography smear, and No Fly List entries. The Jackass never understood why the Praetorian Guard never stepped in to save Rome from its leaders. Today, the Pentagon or CIA does not step in, since they have been corrupted by the lustful power of war and the lure of narcotics. The USCongress does not step in, since corrupted by bribery and threats off the war chest and narco trust fund. The cancer in the United States is as much from contaminated money, corrupted banks, and wrecked/retired capital, as it is from the deep penetration of narcotics. The USMilitary brass, the defense contractors, the devious allies, the Wall Street syndicate bosses, the Basel syndicate lords, and the Security Agencies are incredibly devoted to and integrated with their narcotics business. It has been developed into a vertically integrated business in service to the syndicate, directed toward the goal of global totalitarianism. It is the black demonic blood that circulates and secures power.

◄$$$ JIM ROGERS WARNED THE USGOVT DEBT PROBLEM IS GOING TO END VERY BADLY, AND THE REST OF THE WORLD KNOWS IT. THE UNITED STATES FINDS ITSELF IN DECLINE, BUT HAS NOT SUCCEEDED IN SOLVING ITS PROBLEMS. FOREIGN NATIONS ARE ORGANIZING TO INSTALL THEIR OWN SOLUTIONS IN ALTERNATIVES TO THE USDOLLAR. $$$

Independent fund manager Jim Rogers has a keen ability to summarize complex problems in simple terms. When addressing the USGovt spending and debt limit problems, mired in a shutdown, he said "The US has been kicking the can down the road for 60 years. The temporary fix has happened 18 times. Eventally the market says 'WE ARE NOT DOING THIS ANYMORE, NOT GOING TO LEND ANYMORE.' [Bond] investors are not heeding the warning. The United States is an exceptional country right now. We are the largest debtor nation in world history. No country has ever has ever gotten itself this deep in debt, and we are going to pay the price down the road. All our creditors and all the people doing business with us are too. We are the largest economy in the world, but we are in decline and we are not solving our problems." Rogers went on to describe the solution as making big cuts to federal spending. But the USCongress conducts the same old charade of temporary patches and declared solutions. In another year or two, the debt will be much higher and the risks that much greater, back to the same point. Foreigners have begun to react, seeking alternatives to the USDollar. The are organized. The Western press is not reporting on the Eastern path to such alternatives. See the brief Zero Hedge interview (CLICK HERE).

◄$$$ THE USGOVT SHUTDOWN HAS SOME CLEAR IMPLICATIONS BUT ALSO SOME POSSIBLE HIDDEN ANGLES. A RIPPLE EFFECT WOULD BE DEVASTATING TO THE GENERAL BOND MARKET. A SHIFT FROM CORPORATE BOND PAPER TO USGOVT PAPER COULD RESULT. SOME HIDDEN AGENDA MIGHT BE AT WORK, GIVEN THE TIMING OF THE GLOBAL CURRENCY RESET IN PROGRESS CONCURRENTLY. BIG COINCIDENCES DO NOT HAPPEN, AS THEY ARE INSTEAD MANAGED. $$$

If the USGovt shuts down and remains shut down for an extended period, then Moodys will be forced to downgrade its debt. This in turn would lead to downgrade of Agency debt (Fannie Mae et al). Later would come the big bank corporate debt downgrades. For the weaker giant banks like Citigroup, Bank of America, and Morgan Stanley, it would happen by two notches in downgrade. A chain reaction would occur. These banks would be forced to post more collateral, the result being a required high grade paper. They would start chasing USTreasurys, which would cause a great interior conflict, since the same big banks would be busily unwinding their carry trade in USTBonds. The big banks would be sellers of USTBond futures contracts, but buyers of USTBond securities. If they were unable to manage the inner conflict, they would run risk of sudden death. If more orderly than the Jackass expects, then look for China and Japan to sell heavily into the US-based buying as they see an opportunity to dump USTBonds. Expect corporations like General Electric, Wal-Mart, Microsoft, and Berkshire Hathaway to suffer debt downgrades also. A grand narrowing in the bond market could result in preference for USTBonds at the expense of corporate paper. The process defines a narrowing Black Hole.

On the currency front, an indication of foreign bond movement, the US DXY index is flirting with the 80 level. Any break below has become a question of when not if, a virtual certainty. The next phase will be marred by a grand liquidity drain in almost all financial markets globally, with most nations deserting the USDollar and its USTBond vehicle as a matter of survival. The result is predictable, unless participating within the system. A grand global outcry will soon be heard for the USFed to increase QE bond purchase volume, which would meet the Jackass forecast. The outcry demands could arrive by late October. The Jackass doubts the USGovt will shut down for a long period of time. My firm belief is that Obama has a hidden motive at work, but not known, in league with Wall Street maestros. They will find an extension temporary funding avenue, the usual sham. The hidden agenda possibly could involve the Global Currency Reset. Some power games could be in progress. Reportedly, pressure is being applied on global players to restructure a portion of USGovt debt in the grand reset. It could be a threat given to the global investors on default and total loss, or grand loss in writedowns. Support the USTBonds or else!! Perhaps the Wall Street criminal behemoths have a sick plan at work to profit from rising Credit Default Swap contracts tied to the USGovt debt. They might have a scare in mind for some quick oversized profits on the CDSwaps. Time will tell, as information leaks out.

◄$$$ THE NATURE OF THE INTEREST RATE SWAP CONTRACT REVEALS WHY THE USFED IS STUCK AT 0% FOREVER, OR UNTIL THE USGOVT DEBT DEFAULT. SWAPS DETAILS ARE DESCRIBED WITH DYNAMICS, THE INNER WORKINGS. THE EXCHANGE STABLIZATION FUND (RUN BY THE USDEPT TREASURY) CONTROLS THE BOND MARKET. THEIR ACTIVITY RESULTS IN BANK PURCHASE OF USTBONDS IN FINAL DEMAND, BUT THROUGH ARTIFICIAL MEANS TO COMPLETE THE LOOP. IN ESSENCE, THE E.S.FUND GATHERS IN NATIONAL WEALTH AS IT IS DRAINED OFF DURING THE CAPITAL DESTRUCTION PROCESS, IN A BIZARRE ZERO SUM GAME EXERCISE. $$$

Many are the reasons why the United States and Western world are stuck at 0% forever. The simple apparent reason is that the economies, businesses, and borrowers could not manage a substantial hike in interest rates. However, the bigger story lies in the management of the USTreasury Bonds and thus the USGovt debt. Recall that in the six months during second half 2011, Morgan Stanley put on $8.5 trillion in Interest Rate Swap contracts. A false flight to safe haven was created. In doing so, the Wall Street masters trapped themselves, and ensured a USTBond asset bubble, complete with follow-on collapse, the climax being a USGovt debt default and restructure. In a strange way, the USDept Treasury with its powerful Exchange Stabilization Fund is the counter-party to such derivatives. Better described, the ESFund instigates activity in the bond market. My understanding (surely less than complete) is that the Interest Rate Swap contract is a spread trade short-term versus a spread trade long-term which produces artificial long-term bond purchases based upon free money initiated from short-term borrowings. Thus no counter-party, but managed by JPMorguen and given oversight by USDept Treasury. THEREFORE THEY REQUIRE THE ZERO PERCENT FED FUND RATE TO KEEP THE VAST DERIVATIVE MACHINERY GOING. The nasty rub is that they are stuck at 0% forever. Great strain would come if the cost of running the critical IRSwap machinery rose. Actually, the USGovt debt default will occur eventually, surely before forever arrives. Take a closer look at the inner dynamics, always a fascinating glimpse within the Matrix, provided by two experts in the fixed income and bond markets.

EuroRaj has firm experience with the Indian, Turkish, and Iranian economies with related markets. But he also has London experience in its vaunted banking sector. He shared his viewpoint in a simple understandable format for Hat Trick Letter readers benefit. He explained the Interest Rate Swap to the ordinary person. What follows are his thoughts, my edits for prose. Let us start by defining the two counter-parties in the IRS swap, the USDept Treasury and Cabal of banks that own the USFed. The USTrez goes long on the 10-year bond, using this as an example for the swap rate. This means that the UST pays the 3-month LIBOR rate, and the UST receives the 10-year swap rate. Keep in mind the 3mo LIBOR is virtually free. The Cabal banks pay the 10-year swap rate and the Cabal banks receive the 3mo LIBOR rate. Therefore, the USDept Treasury is long 10-yr rates and uses the swap to suppress rates, which sustains the system and fosters the asset bubbles. The talk of fostering economic growth is all klaptrapp nonsense. In the process, the USTrez uses tax revenues to pay the 3mo LIBOR rate. They supplement their purchases with free money at the USFed window.

From a big picture perspective, one can regard the USGovt tax revenues to be a derivative as they are dependent upon both the nation's productive revenue and income generating activity, as well as the ability of the government to levy tax and to collect taxes. This means that the USTreasury Bond itself is a derivative of a derivative. Consider the dynamics at play. As the tax base shrinks, the USDept Treasury requires lower and lower rates to support its own derivative mountain and to foster growth through aseet bubbles. What ugly irony! By creating inflation, it boosts nominal growth and supposedly expands the tax base, but it also kills productive capacity which ultimately matters in the long run. The reported growth is mostly inflation, with grand distortions since the CPI and related deflators are rigged. The last five years have been an attempt at boosting nominal growth, not met with any success whatsoever. The USEconomy is contracting even without the phony inflation boost. The gigantic problem is that the USFed wishes to taper the QE bond purchase volume, since it has created a $4 trillion toxic balance sheet. They cannot. In the meantime, an $800 trillion derivative problem has emerged.

The solution to the problem is two-fold. The USGovt must increase taxes by raising the tax rates, and by expanding the tax base, even by closing loopholes. Instead, they could devalue the USDollar and work to encourage nominal growth again. The futility is evident to any alert student of economics and finance. Raising taxes reduces the tax base by draining of capital. Worse, any USDollar devaluation would give a massive boost to price inflation and raise the cost of households and businesses alike. The usual lie is to call any nominal growth that comes as true growth, and to suppress the reported CPI and deflators. Thus inflation is the perceived solution, and the lie on inflation provides the proof of policy success. The lie has been regularly doled out to the sleepy public and compromised investment community for 30 years.

Both the USDollar currency and its USTBond vehicle are utterly screwed. After the systemic breakdown, after the USGovt debt default with restructure, after the introduction of a new Gold Trade Settlement system, the Price of Gold will find easily the $3000 mark, then the $7000 mark, and even surpass the $10,000 mark. The final reset is not a pie in the sky number from the tin foil hats, but reality in the face of an intractable USD/USTB financial structure poised to collapse. The critical point is extremely vital, as the Wall Street control room must create artificial demand for USTreasury Bonds while maintaining suppressed rates. The Exchange Stabilization Fund is run by the USDept Treasury, under JPMorgan operations. It is outside the jurisdiction of the USCongress. The ESFund is being used to suppress rates rather than to control activities globally, in a sense the cabal has lost power already. The scarce resources are being drained at home rather than being utilized in any efficient market, either in the economy or the financial platforms. In a sense, the ESF is stuck in a slow burn rate toward the bankruptcy destination.

Rob Kirby joined the derivative discussion to add some fine points. His points, my edits for prose. The fixed versus floating aspect is explained adequately above. However, a very important part to the picture must be described. This part has been covered in past Hat Trick Letters, but is crucial and warrants repeating. In a regular inter-bank interest rate swap contract, the payer of fixed and the receiver of fixed each exchange the underlying notional amount of bonds in the cash market, because banks are spread players. When the Exchange Stabilization Fund does Interest Rate Swaps with banks, they are always a receiver of fixed portions to the swap. They do not provide the banks (payers of fixed) with the bonds. The end result is the ESF action forces the banks as spread players to purchase the bonds in the cash market. Thus the artificial demand in USTBonds. It must arrive to clear the market after the massive ESF activity. The majority of bond and bank and fixed income analysts do not comprehend this important component and end result. The ESF forces the banks to compensate by purchasing USTBonds, an artificial dynamic. The Failures to Deliver are related, but leave that topic alone here.

These trades are hugely profitable for the banks and the USDept Treasury. The profit accrues to the ESFund itself, which does not publish financials. The banks make out like the thieving bandits from this trade also. The real losers in the entire derivative machinery exercise is the pension system, the insurance companies, the army of savers, and those who use bond funds in their IRAs, 401ks, and Keoughs. Some analysts might point to inherent risk, but there is none to the players within the ESFund and its derivative machinery. The USDept Treasury is happy to take the naked long-term rate risk because they are paying the cheap floating 3-month LIBOR rate. The USGovt control room knows that rates are never going to be allowed to go up. They will not go up, because they set the Fed Funds rate and money market rates arbitrarily using offices run by the same players. The reality is that the USDept Treasury and JPMorgan operators truly control the entire curve. The zero rates will continue until the system hyper-inflates or the USEconomy capital base is destroyed or the USTreasury Bond complex collapses from global isolation, wrecked by its own financial engineering gone haywire. Of couse, as Kirby points out, the end result could be a nuclear war since these sadistic sociopathic bastards are never going to stand down, never to relinquish power. They will wreck the table rather than concede the game.

In closing, Kirby disagrees about the Exchange Stabilization Fund ever going broke. Kirby even reckons the ESFund is worth many more $trillions than the Treasury shows on its books in debt, thus very solvent and profitable during the entire systemic collapse. In fact, the ESF net worth is captured in the Comprehensive Annual Financial Reports. It was no coincidence that the same piece of legislation that created the Exchange Stabilization Fund back in the 1930s also created the precursor to the CAFR. Criminals such as those in US power always keep meticulous records, like the Nazis did in Germany. In fact, they are descendents along the same Nazi bloodlines. As footnote, indications build that the ESFund has the long side on many of the Big Bank gold & silver short futures contracts. The ESFund in essence is a gathering vat to hold the entire national wealth as it drains off, and the USEconomy is destroyed, its capital drained. Try including the above discussion in a graduate school Economics program at Harvard, Yale, Princeton, Chicago, or Stanford!! In an exercise of pure hypocrisy, 60 US Senators signed a formal letter protesting Japanese currency manipulation. The isolation of the United States grows with its two-faced behavior. Desperation is on the rise. Contrast the Senatorial protest with the ESFund activity. See the Zero Hedge article (CLICK HERE).

A tremendous quote came from Rob Kirby, lastly. It is of a slight personal note since he worked in the Bay Street bond arena. It pertains to the scummy derivative market that spins off gigantic fees since volume is in the $trillions. He said, "The Goldman Sachs whistle blower lawsuit against the New York Fed is not surprising at all. I have good friends who can be regarded as fine people who either work in the derivatives complex at banks or still indirectly draw a huge living from their allegiances from working there. I am talking about men who have families, enjoy taking 2 to 4 exotic vacations per year, have kids in private schools, belong to 1 to 4 country clubs, have 2 to 4 houses, in some cases have mistresses and not to mention exotic cars and/or exotic toys or habits such as drugs or fine wine. If they speak out with the truth, everything mentioned above is gone, toast. Then they also lose their wives, the right to see their kids. For many of these people, this is simply too high a cost to pay." So the derivative casino continues to turn its tables. See the Zero Hedge story with interview of Rob Kirby (CLICK HERE).

◄$$$ SWAPS TURNOVER GENERATES OBSCENE PROFITS, WHILE FUTURES CONTRACT PLAYERS FALL INTO TRAPS. THE BOND MARKET HAS GONE AMOK. LUNATICS HAVE A NEW USTREASURY BOND PLANNED. $$$

EuroRaj pitched in for an obscure but relevant factoid. The $600 to 700 trillion in total derivative contracts (or perhaps $1200 to 1500 trillion in total swaps) has potentially an annual turnover of more than $3000 trillion ($3 quadrillion). The unproductive trade generates staggering fees for the parties involved. The big US and London banks are the beneficiaries. Ironically, some of the profit goes down the toilet in order to cover derivative accident losses like from the fast rise in long-term USTBond yields seen this spring and summer. The London Whale losses in 2012 were $100 billion, not $9 billion. The derivative losses in 2013 are an order of magnitude larger, without doubt.

On the private investor side, big losses are realized regularly in futures managed funds. The moral of the story is to buy the physical metal, not the futures contract. The entire futures arena is a rigged fiat con game. See the Bloomberg article on managed futures fund losses (CLICK HERE). It is a fool's game. The lunatics are truly running the asylum. They are planning a new potential USTreasury Bond security which would be of higher seniority, the super premium bonds. The Euro Central Bank tried the same maneuver under maestro Draghi, with no success. The courts even ruled them illegal. Many are the extreme machinations to keep the circus rides running and the tables turning. See the Business Insider article (CLICK HERE). Note the new US$100 bill was launched on October 8th, with little or no fanfare. It will be studied when information is available.

◄$$$ THE REPO MARKET APPEARS TO BE THE MOST CRUCIAL OF STRESS POINTS. THE USFED MONETARY EXPANSION IS TOTALLY OUT OF CONTROL. ANY UNWIND OF THEIR BALANCE SHEET WOULD RESULT IN A GRAND FLOW OUT OF PAPER ASSETS AND INTO HARD ASSETS. EXPECT A RACE FOR PRECIOUS METALS, IN ADDITION TO OTHER GROUPS LIKE ENERGY DESPOSITS, BASE METAL MINES, AND FARMLAND. $$$

The USFed is tragically stuck, a theme described in regular detail for five years in the Hat Trick Letter. The housing market weakness and the horrendous drag associated with mortgage backed securities have acted like a grand ball & chain for the USEconomy.  The REPO market appears to be where the stress is most threatening, under the surface. These $trillion daily transactions serve as the lifeblood of world financial markets. It is under tremendous strain. The underlying economies are threatened from the fallout in financial platform collapse. The USFed can only supply the much needed REPO market collateral through deficits. The system is caught in a war against capital, and a war for securing supplies overseas. The resulting stimulus to the USEconomy is fatally flawed. The resulting zero bound in interest rate is to continue without end. The USFed has no ability to taper the QE bond monetization volume. The central bank is stuck in hyper inflation gear. Its most recent experiment on tapering the QE volume turned out to be a major fumbling event in full view, but it won political support for QE to Infinity (my forecast).

The monetary expansion is totally out of control. It is not flowing into the general economy in any way shape or form. It is exclusively going into the financial markets toward bonds and stocks. Hidden is the flow into derivative loss coverage. The equity market has advanced to all-time highs despite the clear entrenched recession. Any claimed signal of imminent economy revival makes a laughing stock out of the analyst. The recovery is always imminent, never to arrive. In contrast to the perceptual distortions from such stock rises, there remains a crucial confidence enabler. The big banks are devoted to leveraging their credit games via capital markets, not from their unused reserves or traditional lending practices.

Any exit by the USFed in sharply reduce QE volume would likely result in the immediate collapse of stocks, as $2.2 trillion in marginalized credit has been injected into the capital markets. The entire derivatives house of cards would cause a financial nuclear event, since linked intimately with that enormous bubble. The certain consequence would be an urgently required huge bailout of financial pillar institutions (the regular suspects for bank welfare) and further rounds of monetary expansion. The USFed is stuck with its foot on the pedal, using nitroglycerine as fuel. It cannot afford to permit the leveraged $2.2 trillion in added marginal credit to unwind. If such an unwind reversal process does commence, the markets will be treated to the mother of all flows away from paper security assets and into a wide assortment of physical assets led by Gold & Silver and energy. The event would serve as the shot heard around the world, clearly heralding the end of the long deferred fiat monetary experiment. See the Resource Investor article by Jeffrey Lewis (CLICK HERE).

◄$$$ IMPACT OF UNWINDING TO USTBOND CARRY TRADE. NO MONEY ON TABLE TO ENTER STOCKS. INSTEAD, HUGE MONEY DRAIN FROM WRECKED ARBITRAGE ON INTEREST RATES. THE BIG US-BANKS ARE BEING DRAINED OF THEIR LIQUIDITY AT LIGHTNING SPEED, PRECISELY WHEN THEY MUST DEFEND THEIR LEVERAGED POSITIONS IN DERIVATIVES. A FINAL STAGE IS IN OCCURRENCE, ESPECIALLY GIVEN THE FOREIGN ABANDONMENT. $$$

The great unwind cannot occur. It will not be permitted to occur. The bond yields cannot rise, or else a disaster occurs. The unwind of the leveraged USTreasury Bond market is unlike past credit cycles. This time is different, since the bond investors are not individuals and institutions, but Wall Street with heavy leverage. To be sure, the Big US Banks are losing huge amounts of money in their leveraged bond positions. They love leverage, due to greed and juice. They prefer bond futures, just like they prefer the S&P futures contract, and just like they used to prefer their mortgage bond REMIC invention. Their past track record and preferences are well known to the financial engineering industry. The concept of unwinding leverage with bond introduced the Convexity term. The bond market will tend to overshoot as it unwinds. Going further, Wall Street saw fit to expand into the leveraged Collateralized Debt Obligations (CDO), which imposed leverage upon the leverage. These corrupt pillars even called it squared leverage.

Some naive investors believe the USTBonds being sold will release new funds directly into the US Stock market, even help to revive the USEconomy. Not so! As the leveraged USTBond positions are unwound, they will not release vast funds into the financial markets or the economy. The reason why is simple. They are spread trades. As the wrecked spread trades (short the USTBill and long the USTBond) are unwound, they are big BIG money losers. So to close out the USTBond futures carry trade, they must bring money to the table, big money, even some USFed aided money. In futures trading, they are marked to market. They are not carried on the books at book value, as some errantly suggest. Not the futures contracts that Wall Street banks are so fond of, with a 30 to 40 year history. The big banks can conceal their losses only for the USTBonds held without leverage. The ten year maturities are almost never held to maturity, an absurd notion on its face. Thus the motive to conduct Operation Twist by the USFed in 2011 and 2012. The foreign holders of long-term USTreasurys shifted to shorter maturities, so they could wait out the destructive USFed monetary policy, and be paid off at maturity of the bonds, not a difficult sale. Sale by big banks of USTreasury Bonds is an action that generally reduces liquidity available to the big banks, which puts tremendous strain on their ability to manage the interest rate derivatives, since they are losing capital at hyper-speed. The death of the big US banks is near, made more likely (if not certain) by carry trade losses, disastrous leverage, and foreign abandonment.

◄$$$ ERIC SPROTT OPENLY CALLS THE FED AS HAVING LOST CONTROL OF THE BOND MARKET. TAPER TALK RESULTED IN A NEAR DOUBLING ON BOND YIELDS. AN ACTUAL TAPER IN QE BOND VOLUME WOULD RESULT IN A TOTAL ROUT WITH CARNAGE AND A SYSTEMIC FAILURE EVENT. $$$

Eric Sprott gave a direct interview to the Silver Doctor. He used plain language. He expects no tapering of QE volume. He believes against the backdrop of the US fiscal debt crisis, the USFed could not taper the volume of official QE bond purchases because it has lost control of the bond market. He said, "We have never printed on a daily basis more than we are printing right now. All the while, interest rates doubled! Just the talk of tapering moved the rates significantly higher. I happen to believe that they have lost control of the bond market. Just by talking the talk, the rates doubled. If they walked the walk, I think we would see a dramatic increase in rates here and severe carnage in the bond market." Sprott went on to claim that the paper gold market was crushed by the Western Central banks this spring in order to free up gold supply from the strangled and captured Exchange Traded Funds, as a massive gold shortage threatened the bullion banking system. He judges the battle to be one the Western Central banks are doomed to lose, as global physical demand will continue to overwhelm central bank supply. The biggest losers in the process are the dopey nitwit sleepy braindead who invested in the GLD Fund or SLV fund, thinking they actually owned some Gold or Silver bars. They owned nothing but paper certificates in a scheme that served the banker cartel. The GLD fund is seeing its inventory depleted in Satan's service. See the Silver Doctors article (CLICK HERE).

◄$$$ USFED MEMBERS JUSTIFIED MORE VOLUME ON THE OFFICIAL BOND PURCHASE PROGRAM. THE TWIN FACTORS OF WEAK USECONOMY AND WEAK LABOR MARKET WILL PROVIDE ALL THE NECESSARY JUSTIFICATION. THE CURRENT USFED POLICY ASSURES THE JUSTIFICATION, DUE TO RESTULTANT CAPITAL DESTRUCTION. $$$

Rob Kirby warned a month ago that profound weakness in the USEconomy would permit the long-term USTBond yields to be pushed down by the available tools at hand by the bank cartel. Early signals are proving his viewpoint to be correct, as two USFed players are talking down the economy in clear terms. The doves are New York Fed William Dudley and Atlanta Fed Governor Dennis Lockhart, with some background refrain provided by St Louis Fed Governor James Bullard, who called tapering an outright tightening event. The irony is thick, as USFed monetary policy is weakening the USEconomy in capital destruction due to the rising cost structure in feedback response. As the USGovt economist harlot morons talk of a recovery, the Fed Governors must argue on economic weakness to justify greater QE bond volume. Policy makers do not even realize they are caught in a vicious cycle, causing a Black Hole for USTBonds and a Toilet Bowl for the USEconomy. The Jackass forecast of doubled QE volume will be an easy forecast to turn correct.

In late September, timed almost exactly with the Bernanke submission speech, where he backed off on any reduction in QE bond purchase volume, a chorus was heard by doves singing in unison. Not only did they explain the reasons behind Bernanke's taper reversal the week before, but they provided justification for amplified QE in what might next be called QE4, to be announced by year end or very early 2014. Dudley said the USFed must act forcefully to push against headwinds, that it might take considerable time to reach the 6.5% jobless level, that the USEconomy still needs very accommodative policy. Lockhart added to the chorus. He said the USFed focus should be faster economic growth, that some slowing in US payroll growth has been seen. Both men attempted to sound intelligent and alert, when their past decisions helped to create the intractable crisis that requires hyper monetary inflation to avert a collapse. They missed all past signals of asset bubble creation, and all signals for their bust. They are system wonks, mere henchmen in dutiful service to the bank cabal. They are far less intelligent than they seem, and poorly educated. They compensate loyalty for capability.

These corrupted bankers speak of achieving the dual mandate objectives of maximum sustainable employment in a context of price stability. They have added the third mandate of stable financial markets. They achieve none of the three goals. They cite metrics, none of which will be achieved. Thus QE to Infinity, with rising volume. Now they are stuck with increasing volume of QE bond purchases. Pathetic!! They do not mention the obvious missing piece this cycle, that a critical mass of US industrial base was shipped to China. See the Zero Hedge article (CLICK HERE).

## DEFENSE OF THE USDOLLAR

◄$$$ SAUDIS BRACE FOR A NIGHTMARE OVER US-IRAN DETENTE. THE DOMINOES ARE LINED UP FOR IMPORTANT FALLOUT THAT ALTERS THE GEOPOLITICAL LANDSCAPE. THE ULTIMATE VICTIMS WILL BE THE PETRO-DOLLAR, THE USTREASURY BOND, AND THE USECONOMY. $$$

Saudi princes now believe the United States is betraying them. They are angry at the United Nations for not reprimanding Syria. They see rivals gaining ground across the Arab world. The USGovt must make nice with Iran, and produce a rapprochement of sorts in eased tensions. The world demands it. The Petro-Dollar is at risk. The Saudis will be pushed into Russian & Chinese hands further, ensuring the demise of the Petro-Dolllar. In the process the USDollar will lose its global reserve status. The US will become deeply isolated, later to fall into the Third World. The dominoes are falling, and nothing can stop them, the momentum tremendous. The Saudi leaders understand this, and are justifiably worried. The fall of the House of Saud is coming, not this year, not next year, but in the next few years. The Saudis sense the change in the geopolitical winds, something the Jackass has sniffed since 2010 when the Arab princes convened in Abu Dhabi to decide on the new Persian Gulf protectorate offered by the Russia & China duo. Neither alone can dominate the United States, but together they can.

A key missing note was heard when Saudi Arabia's Prince Saud al-Faisal, the veteran foreign minister, failed to make an annual address to the United Nations General Assembly in early October for the first time ever. It means the Saudis are angry and worried. For years, the Saudis have preferred backroom politicking to the public arena, but they always made a statement before the UN forum. As the future of the Middle East is in development, the Saudis are furious that the international body has taken no action over Syria, where they themselves and Iran back opposing sides. Their anger is not directed at China and Russia, which obstructed initiatives at the UN Security Council. Instead, their fury is directed at the United States, whose policies they see as weak and simplistic. Experts believe the alliance between the United States and Saudi Arabia, the Islamic monarchy that dominates oil supplies, is not about to break. The Jackass disagrees. What is heard qualifies as merely politically correctness at work. The two nations have been at odds over Egypt since the Arab Spring began. In fact, Saudi factions and support overthrew the US puppet Morsi.

The Saudis have a mortal enemy in Tehran with Shiite Muslims, for their divisive beliefs and aid in revolt. A major turn has occurred. Already aghast at USGovt reluctance to more vigorously back the rebels fighting against Syrian President al-Assad, next the Saudi princes were horrified to see Washington reaching out to Hassan Rouhani, the new Iranian president last month. The Syrian regime is Tehran's strongest Arab ally. Although any meaningful US-Iranian full rapprochement seems unlikely, Obama telephoned the moderate Rouhani during the United Nations General Assembly. It was an unusual outreach, founded in weakness, not in goodwill.

The Saudis are concerned the Obama Admin might work to thaw ties with Tehran by striking a deal to expand inspections of its nuclear sites in return for not obstructing Iran and its allies. They wish to proceed with Arab nation interference, such as in Iraq, Lebanon, and Syria. The USGovt is balancing interests in the region versus Saudi friendship. But the risk is for the United States to lose on both counts. The Arab Spring has backfired, most notably in Egypt. The Saudi regime is an unstable powderkeg, with legions in prison for political crimes and Islam opposition. Some point to rising US domestic oil output as relaxing the US-Saudi ties. If Shale energy strategy is the basis of such relaxation, then the US is in big trouble, since Shale is a Ponzi sham even the big US oil firms do not believe in. The Russian-brokered deal to dismantle Assad's chemical weapons and thus avert air strikes was a bitter blow for Riyadh. The main Saudi strategy in Syria had been to coax its American ally into the war. The chemical weapons were purchased by the Saudis from British firms, and used on a limited basis outside Damascus. The event was blamed on the Syrian loyalists, again typical US propaganda with a Western echo. Assad loyalists have no chemical weapons, and Russia supplied them none.

The divisions with the US involve specific weapons shipped to the Syrian battle. Several analysts and diplomats in the Gulf claim the Obama Admin had pressed the Saudis not to deliver significant weapons such as surface-to-air missiles to Syrian rebels, fearing they would fall into the hands of the Islamist militants. The Saudi princes had been at odds in their steadfast US support. In recent weeks, the Saudi rulers are to consider going their own way, since minor divisions have receded. Full outright opposition to USGovt policy has resulted. Mustafa Alani is an Iraqi analyst at the Gulf Research Centre in Jeddah with close ties to the Saudi security establishment. He said, "There is not even one senior prince sympathizing with Obama any more. They think he has lost his head." Deep conflicts have arisen between the Saudi princes and the Obama Admin over the entire Arab Spring rebellions orchestrated by the CIA. They toppled autocrat strongmen regimes that were friendly to the Saudis. The US agenda is diverging from that of Saudi Arabia. The US-Saudi relationship has been one of the most enduring in the Middle East. Times are changing. The allies are at odds, and the friction will intensify.

Conflict over actions in Egypt made a break in the Jackass view. Since the overthrow of Mubarek and Morsi, followed by outsized Saudi aid to replace the lost USGovt aid, the Saudis seem inclined to push against formal US policy in other areas, particularly on Syria. Mid-October marks the 40th anniversary of the Arab oil embargo, which eventually resulted in the Petro-Dollar birth and Arab oil surplus recycle into USTreasury Bonds. The defacto trade standard is old and fracturing, beset by stresses and the emergence of the Eastern Alliance of G-20, BRICS, and SCO. The United States is going to lose the Petro-Dollar foundation, while it pursues greater goals that help to hold power and supply routes.

The ultimate victim of the Obama Admin policy in the Middle East will be the demise of the Petro-Dollar defacto standard. Its obsolescence and gradual demise will force the isolation of the US, a tremendous final phase stress on the USTBond, thus opening the gates to price inflation with shortage to the USEconomy. The rise of the Natural Gas Coop led by Russian Gazprom will be the final killshot blow to the Petro-Dollar. In the aftermath, the Saudi regime will fall or be totally revamped as the princes scatter. See the Reuters article (CLICK HERE).

◄$$$ BIG POTENTIAL CHANGES ARE COMING FOR CRUDE OIL, WHICH HAS BEEN THE OBJECT OF DEEP PRICE SUPPRESSION. THE UPCOMING OIL PRICE RISE (ABOVE BRENT) SIGNALS THE DAMAGE FROM THE USFED MONETARY POLICY AS WELL AS GROWING ISOLATION OF THE UNITED STATES. THE CLIMAX EVENT FROM SUCH A WEST TEXAS OIL PRICE GAIN WILL BE THE COMING DEMISE OF PETRO-DOLLAR. THE BRENT OIL PRICE PREMIUM HAS GONE AWAY WITH THE SYRIAN WAR THREAT. DOMESTIC FACTORS WILL NEXT DOMINATE. $$$

The Brent vs West Texas oil price spread has been a topic of Jackass interest, not discussed much in the US financial press. The plunge in the spread was related to US infrastructure and technical issues, then later more to the war premium due to Syrian conflict. Pierre Andurand (ex-Goldman Sachs) manages one of this year's most successful commodity hedge funds. He forecasts the US crude oil price will rise above the Brent benchmark within weeks, counter to the consensus expectations. His focus is on the Cushing inventory in Oklahoma. He said, "In order for Cushing inventories to stop drawing and start building, WTI [the US oil benchmark] should be at a premium to Brent [the European benchmark]." The indications in the futures market point to US oil continuing to trade at a discount of $3 to $4 per barrel for the rest of the year. The West Texas oil price had traded at a steep discount of $15 to $20 to Brent for several years as a US surplus weighed on US prices, while Wall Street pushed down prices using the Platt desk. But the discount narrowed sharply this year as pipelines opened to transport crude from storage tanks at Cushing Oklahoma to refineries around Houston.

The expert Andurand argues that Cushing, the delivery point for WTexas, is dealing with oil supply shortages, which should lead the US benchmark to trade at a premium to draw crude back into storage. He estimates a minimum of 20 million barrels is required to prevent damage to the network of tanks and pipelines around the town, a level that could be reached within weeks. Furthermore, very little of the oil remaining at Cushing is of the high quality stipulated in the WTI contract. Lower quality usually means heavy contaminants or high sulfur content. See the Zero Hedge article (CLICK HERE).

The Jackass addition is that the Shale fields are not producing as much as anticipated, neither oil nor gas. The big oil firms are packing up and leaving the MidWest and Dakotas. The oil supply should worsen, lifting price. Shale depletion is a growing story, as the USGovt hype fades away. Almost nothing the WashingtonDC clowns discuss, promote, or support is of value or substance, certainly not for investment. Their favorite play in 2009 and 2010 was green energy, where corruption was later exposed. See the Zero Hedge article (CLICK HERE) on the Bakken hype versus the dismal reality. It should be nothing new for those who have been following Steve StAngelo, aka SRS Rocco.

The commodity fund manager Andurand is probably correct, but his reasoning is rather sparse. He surely does not wish to give away his trade secret, namely forecast analysis. Let us examine what could be the prominent factors behind a WTexas oil price surge. As preface, examine the reasons why oil inventories need to be built at Cushing, especially when no significant USeconomic growth is evident or on the horizon. Focus initially on prevention, like to prevent price inflation and to support asset bubbles. The bank syndicate has been drawing down inventory through the summer as part of their regular price suppression project, as lower oil price aids the pathetic USEconomy non-recovery and keeps a lid on systemic prices across the nation. The direct motives would be many, such as a) to assist the housing bubble restart, b) to show no impact of all the warmongering in the Middle East, c) to prevent the student loan and auto loan bubbles from bursting, d) to mask the isolation of the USDollar while being rejected globally, e) to assist the stock bubble in S&P and Nasdaq, and f) to nurse along the USTreasury Bond bubble.

The oil inventories need to be built soon in order to deal with imminent threats. The obvious reason is that oil inventories are dangerously low. The main reason (overarching factor) is that the USFed will ramp up QE sooner rather than later, with clear indications likely in Q4 when official bond purchases accelerate, to be dubbed QE4. The WTexas oil price will rise above the European standard Brent because of USDollar isolation. Two other reasons stand out. The Shale energy projects are not producing what it promised, a veritable wreck. Also, the hurricane season is in swing with winter coming soon. The smart money will continue to hedge against the debilitated USDollar as the USTBond vehicle suffers gradual abandonment through diversification and redemption. If the WTexas oil price rises to show a premium over Brent, regard the signal as loud and clear, as prelude to the death of the Petro-Dollar. The Obama Admin will soon be forced to allow the Keystone Pipeline completion. The Wall Street banks will probably have the last opportunity to dump their long WTI contracts on the crude buyers. On an increasing basis, the WTI crude oil price has become a meaningless metric. Thanks to EuroRaj for many thoughts toward the analysis.

◄$$$ BIG MONEY IS URGENTLY SEEKING HARD RESOURCE ALTERNATIVES IN SOUTH AMERICA, AUSTRALIA, AND ESPECIALLY AFRICA. AN HISTORIC USDOLLAR DEVALUATION IS NEAR. IT CANNOT VIABLY BE DONE VERSUS OTHER EQUALLY IMPAIRED PAPER CURRENCIES. IT WILL BE DONE VERSUS GOLD, IN ORDER TO RESTORE THE GLOBAL BANK SYSTEM SOLVENCY. $$$

The Voice, a stern reliable brilliant gold trader, offered some information on diversification trends. He refers to defensive action taken in the face of deep currency debasement by all major central banks. "The Consortium, as well as some very well connected Anglo & American bankers, are well known for their ruthless business practices. They are busy planning for the ineviable collapse. Their billions of US$ cash monies are trying to escape the coming debasement. We anticipate the US$ being devalued by the US government by 50% overnight in the not too distant future. Once viewed as extreme, the big overnight devaluation is growing in probability, due to Fed ongoing QE monetizations and intense pressure from points around the globe to address the stubborn bank insolvency problems. So these liquid US$ are frantically looking for hard assets, commodity based investments to be parked and converted safely all across the globe. They have been seeking assets in Australia and Africa for a full decade. Now they are avidly searching in South America." If the USD were devalued by a significant amount, the USGovt debt might find some buyers. If the USTBond yield were higher, the USGovt debt might find some buyers. These are some very basic market dynamics at work. The fiat paper currencies will move together as a crippled group, a broken marching band. They will fall versus the Gold price, each go to one knee, and salute the King Gold.

Inside the United States, a great silly distraction is taking place centered upon the feeble ObamaCare funding. The more intense conflict is over the USGovt budget, which dares to face a debt default. The distraction on the domestic front takes attention away from the global pressures. The bigger issue is the sudden overnight 50% USDollar devaluation. The threat of a shutdown acts as the smokescreen that provides cover for the real problem, an overvalued USDollar. The Chinese have had enough, and are playing hardball. They are pursuing another window for a breakin, as they want redemption of USTBonds, even old legacy bonds. The fiat paper currencies are tethered together, lashed as a group on a sinking derelict ship that struggles to find stability in stormy seas of liqudity. Soon a day comes when we wake up to find Gold is two times higher in price and Silver three times higher. The USDollar cannot devalue by a large amount against the Euro or British Pound or Swiss Franc or Japanese Yen. Such an event would rip the trade routes apart, sending trade volume to the ocean floor. The USD devaluation is due versus Gold & Silver. The event will be your best clue that the US has slipped into the Third World. The next event afterwards will be the breakup into some managed territories, as no more federal entity can conceivably act as mafia syndicate leader and blood sucker of national wealth.

## ESCAPE FROM THE USDOLLAR

◄$$$ RICKARDS EXPECTS A NEW WORLD MONETARY SYSTEM TO BE REBUILT AROUND GOLD. THE OUTSIZED MONETARY GROWTH (MONEY SUPPLY) OVER THE LAST DECADE DICTATES A GOLD PRICE OF AT LEAST $7000 PER OUNCE. THERE IS ALWAYS SUFFICIENT GOLD TO ANCHOR CURRENCIES, AS THE CHALLENGE IS TO SET THE PRICE OF GOLD CORRECTLY. IN ORDER TO RESTORE CONFIDENCE AND INTEGRITY IN THE CURRENCY SYSTEM, THE PRICE WILL BE MULTIPLES HIGHER. HIS VIEW OF A ROLE BY THE INTL MONETARY FUND IS ERRANT AND FOOLISH, BUT HIS VIEW OF A RETURN TO THE GOLD STANDARD AGAINST THE ELITE'S WILL IS VERY CORRECT. $$$

Jim Rickards plays an intriguing game on both sides of the bank cartel fence. He has been advising governments motivated to devalue their currencies to buy gold rather than other currencies, a more effective approach. The current approach is a race to debase currencies, which will not restore growth in their weakened economies. It will instead produce price inflation and further financial sector instability. He interprets the enduring heavy flow of gold from West to East as evidence that the world monetary system eventually will be rebuilt around gold, with an emerging new standard. He cites one of the greatest failed experiments in economic history, ending with a climax collapse of the USDollar. The power of the USFed is oversized, due to the USDollar's unique position as the global reserve currency. As a result, actions by the USFed create huge percussive ripples across the global economies, causing problems in foreign nation banking systems and foreign economy price structures, in particular the sensitive food prices. In fact, often the influence seen in events is little understood by the USFed itself. In the colorful words of Rickards himself, the policy makers at the USFed believe they are dialing a thermostat up and down, when actually they are tinkering with a nuclear reactor. The risk is a meltdown of the entire global financial system in his view, fully agreed.

The USFed has printed almost $3 trillion since 2007, in reaction to insolvency and liquidity crises. After the final analysis is done in a review, the initiatives called QE1 and QE2 and QE3 will be seen as enormous blunders in one of the greatest failed experiments in economic history. Such is the Rickards view, in unison with the Jackass. What has already collapsed is the confidence in paper money. Next comes the crisis climax in sovereign debt, which serves as the defacto foundation of the leading fiat paper currencies. Rickards anticipates a second major liquidity crisis to occur in the next couple years. When it comes, the major central banks are going to be tempted to print another $6 trillion to $9 trillion in his opinion. The Jackass is in full agreement, except a systemic breakdown will occur first. He errantly expects the Intl Monetary Fund to take control and issue Special Drawing Rights (SDR) as global currency. But such a conceptual plan is cockeyed, and evidence of his own compromised career connections and roots. None of the central banks have clean balance sheets at this point, as they look like discredited hedge funds. The ends reached today are marred by lost confidence in paper money. It must be restored. No solution has succeeded, since all have been drawn from paper money, more debt, and obscene extension of credit. The IMF and its queer SDR represent more of the same lousy plan. If the IMF indeed is asked to flood the world in a grand reliquified process, it will create massive inflation, the source of which might not really be understood. So Rickards is contradicting his own supposed solution by citing the harlots at the IMF as an integral part of any viable solution.

The better alternative is the Gold solution, which would restore confidence, claims Rickards. But to have a non-deflationary Price of Gold, it must be on a reset at $7000 per ounce, possibly as high as $9000 or 10,000 per ounce. Rickards counters the argument of extremism by critics. He points out how money supplies have risen far out of proportion to the mining output and physical supply of gold. Very effectively, he concluded that analysts and finance ministers are incorrect when they claim a Gold Standard cannot be instituted, because there is not enough gold. There is always enough gold, since it is just a question of price. The theoretical question of the right Price for Gold on a return to the Gold Standard is simple when marking to the rise in monetary aggregate (money supply). It is at least $7000 per ounce. Although likely and surely the correct price, it is far from a central bank desire or goal. The Elites clearly would not want such a high proper Price of Gold for restoring confidence. Rickards repeats the confidence factor, when the more valid objective is to restore soundness and integrity in the currency system. In his description of the future for the international monetary system, he reminds that the USFed is still behind the wheel, but they are still driving the bus over the cliff. See the Peak Prosperity interview (CLICK HERE). Any path from the USTreasury Bond to Gold bullion as financial core ballast will involve a global crisis in climax, a deadly event sure to feature war.

◄$$$ EURO CENTRAL BANK SET UP THE SWAP LINE WITH CHINA FOR BILATERAL TRADE. THE MANY NATIONS IN THE EUROZONE WILL SEE THEIR CORPORATIONS AND BANKS PARTICIPATE MORE IN YUAN SECURITIES, MOVING AWAY FROM USDOLLAR SECURITIES. THE YUAN SWAP FACILITY EXPANDS FURTHER, AS THE USDOLLAR FADES SLOWLY AWAY AS TRADE STANDARD. ESSENTIALLY ALL TRADE BETWEEN CHINA AND EUROPE WILL BE NON-USDOLLAR IN BASIS. $$$

An historical break has occurred. Europe has unequivocally moved into the Chinse financial camp. China and the European Union have signed a $57 billion currency swap agreement. It will endure for three years. Note the encroachment into the West. Europe is the grand prize, and always has been. The US is losing Europe to the New China Sphere. On October 10th, the Peoples Bank of China (PBOC) signed a vitally important currency swap agreement worth CNY 350 billion with the Euro Central Bank (ECB). The facility has been established by authorities in the context of rapidly growing bilateral trade and investment between the EuroZone and China, with an added motive to ensure the stability of financial markets. The EuroCB is poking a finger in the US eye socket. The swap line facility will be available to all EuroZone countries through their national central banks. At the same time, the PBOC will have access up to EUR 45 billion. The EuroCB claimed the swap line will serve as a backstop liquidity facility. Trade between Europe and China has doubled since 2003 and is worth more than $1.3 billion per day. The European Commission is set to negotiate on an investment agreement with China at a meeting in Luxembourg later in October, which could pave the way for a Free Trade Agreement between the two biggest markets in the world, Asia and Europe. The Eurasian Trade Zone is within reach in the near future, sure to leave the United States outside looking in.

Bilateral trade has grown tremendously with China, which has pushed for wider flexibility in the exchange rate control mechanisms. By this deft maneuver, China is integrating itself more into global financial markets. China serves as the EU's second largest trading partner after the United States. The 28-nation bloc exported EUR 71.4 billion of goods to China in the first half of this year, with imports totaling EUR 133.6 billion, according to Eurostat data. Note the large European trade deficit as a result. The Bank of England was the first in a race among European central banks to establish swap facilities with China, when it agreed on a line of CNY 200 billion and GBP 20 billion in June. China has similar swap facilities in place with Australia, Turkey, Brazil, South Korea, and Malaysia. It has ones with France and Switzerland in progress. The largest such swap facilities are found in Asia. Hong Kong has a giant swap agreement at CNY 400 billion, followed by South Korea at CNY 360 billion. The EuroCB line at CNY 350 billion is their third biggest. The ECB swap line is smaller than initially anticipated, but is expected to expand. The Frankfurt Main Finance, the key lobby group, stated in July that the facility could be as much as CNY 800 billion. All in time.

Frankfurt has motive. It strives to become an offshore trading center for Chinese Yuan. Germany has forged close ties with China, its third biggest trading partner. The two countries imported and exported goods & services valued at EUR 144 billion on a bilateral basis in year 2012. The competition is with London, still the global center for currency trading. The London arrogance is evident, as some City economists called the German-Chinese swap line announcement merely symbolic as a backstop. Hardly!! Next will come Chinese Govt bond issuance out of Germany, to rival London. The swap facility when fully in place will aid economic development in other nations such as France and Italy and Spain. Christian Noyer is the French representative on the ECB Governing Council. He said, "The swap agreement is for a very significant amount. This reflects the strong position of the Euro in terms of international exchange. EuroZone banks and French banks now have at their disposal the security they need to develop their business in renminbi over the long term."

The Chinese Yuan is become more of a global currency, a key requirement for serving as a secondary global reserve. Holders of Yuan paper in Europe can be more assured to avoid any financial squeeze with amplified access to renminbi liquidity. The greater message is a billboard sign that the majority of European trade with China will be done no longer in USDollars. The secondary impact will be more Yuan securities occupying the EU banking systems, and fewer USTBonds. Expect more EU-based diversification out of the USGovt sovereign debt securities. The tide is going out on the King Dollar yacht, soon to find itself aground. See the Bloomberg article (CLICK HERE) and the BRICS Post article (CLICK HERE). The progression toward the Chinese Yuan reaching global reserve currency status is moving along apace. It will soon achieve that status. An interesting but somewhat myopic perspective is offered by John Mauldin, always on the scene to provide a distorted mainstream viewpoint, at times shallow. The 2000 decade did not witness a Muddle Through as was his constant goofy superficial refrain, but rather a crisis filled set of years as the Jackass forecasted. His essay strays from reality. He regards the Shale Energy programs as viable, when it is a sham wrapped in a Ponzi Scheme. He perceives the US Current Account deficit as declining, when the reduced imports are an obvious signal of USEconomic recession rather than health. His discussion on currencies and Chinese trade is excellent though. See the Investors Insight article (CLICK HERE).

◄$$$ INDICATIONS THAT PANAMA IS WORKING TO ABANDON THE USDOLLAR, AND REVERT TO THE BALBOA CURRENCY. EXPECT A USDOLLAR SPLIT, SINCE SO MUCH COLOMBIAN MONEY RESIDES IN THE PANAMA BANKING SYSTEM. THE PROCESS WILL BE SLOW IN TRANSITION. THE CREATION OF A GOLD VAULT IN THE LATIN AMERICAN BANKING NEXUS IS VERY SIGNIFICANT. $$$

Word came from my Central American source in Costa Rica, good reliable with USMilitary and USGovt security agency background. His information has coincided well with The Voice on several past stories. A Panama bank shutdown concerned the re-introduction of the Panama Balboa currency. The plan is to float the Balboa again, which for over 25 years has had a 1:1 peg to the USD. The story has yet to be confirmed in clear terms. Their banking system was disturbed this past summer by a serious hacking incident within their ATMachine system, which had a single contractor and therefore a single point of entry to hack into. The three days of bank shutdown ended without incident. So far the USDollar is still in usage for the economy and banks. Any transition will be very slow. Apparently, the ATM systems are working again. The word is that Panama wishes to possibly pursue a gold-backed Balboa currency, or adopt the Euro currency instead. The bank shutdown gave them an opportunity to rejigger many things in the financial system. Details are very difficult to obtain, just firm word from the source. Panama hopes to abandon the USDollar in their economy and banking system. In preparation, they are loading up on Gold bullion in reserves, to fortify the reverted Balboa currency.

The USGovt has controlled abused and pushed around Panama for years. It is the gigantic Colombian drug money harbor in the Americas. They prefer Panama banks to their own, and use Panama to mix the drug money with legitimate commercial money, to engage in large construction and investment projects, in order to integrate the money into the system (launder via projects). From Jackass personal research and on the ground observations, one third of Panama bank funds are from the native canal income estimated at $8 to $9 billion per year, which spawned a local economy founded in trade. That is significant for the small nation with 2.5 million in population. Recall that President Theodore Roosevelt purchased the Panama Canal Zone for a pittance from the nation of Colombia, the Panama region being a province to the north. It only later became a sovereign nation with formal income from the canal, taking over the trade channel from Costa Rica and their railways a century ago (called the land canal). Nowadays the massive import/export traffic has enabled a significant distribution, outlet, and accounting business that is truly impressive. A second 1/3 of Panama bank funds are from the Colombian sources of drug money mixed with valid commercial money. The nation of Colombia (little known to US folks bombarded by propaganda) is the site of the strongest, most vibrant, and best financed economy in all of Latin America, which also boasts the strongest stock market in the Americas. Its medical facilities in certain respects rival the US, especially in cancer cures which are largely obstructed by the American Medical Assn. They focus on slower metabolic solutions in quick cures, while the US focuses on chemotherapy toxic solutions in managed death. The last 1/3 of Panama bank funds are from the USGovt security agencies, their pensions, their covert projects, and more, all steeped in secrecy. One could call Panama the off-shore slush fund home for the USGovt dark side dominated by narcotics.

When Noriega was ousted in the 1980 decade, a deal was struck, as the Jackass has inferred. The US and Latin American elite agreed upon a No-Kill Zone in Panama where drug money from the entire American Hemisphere could find lodging in safe haven. Panama emerged as the Switzerland of Latin America. It is an impressive city with hundreds of banks, from Europe, from Colombia, from the United States, from Canada, and from Asia. They have 20 Colombian banks down there, like Banesco. Most names were not recognized upon the first few trips for canal inspection as a tourist. Panama differs from Costa Rica central highlands in that it is much more humid, with somewhat more insect nuisance. More English is spoken there than in Costa Rica. The legal profession is more honorable there. The infrastructure is more reliable, such as for cell phones, cable TV, and internet service. The agreement to use the USDollar in commerce and banking was part of the accord not to engage in murder, abductions, and extortions of key bankers and drug cartel leaders within the Panama border. It has stood for over 25 years, the safe haven understood and honored. Inquiries were made by the Jackass in 2009 and 2010 to a couple acquaintances made with some banking experience about a transition away from the USDollar in the event of further disruption and financial disturbance. The answer was that the government was busy creating contingency plans.

Conclude that if the Panama Govt breaks away from the USD fold, it will potentially disrupt a system in place for over two decades, and deliver a grand FU to the United States Govt and Military. Many Panamanian soldiers were killed when Noriega was ousted, and a national holiday created to honor the dead who stormed a USMilitary Base. Some underlying hard feelings linger. My belief is that the USGovt agencies in Panama will continue to enjoy their safe haven from which to do banking, even to fund pensions and their haunting projects. But the Colombians might serve as a key factor to force a USD split. Many USGovt currency decisions and Treasury Dept actions are designed to isolate drug cartel competitors to the CIA and its vast business that has usurped the Drug Enforcement Agency (cartel cops) and the Coast Guard (cartel escorts). Any attempt to Call Home Dollars for conversion will backfire. Any pressure exerted on Colombia Dollars will result in a grand resistance. The Jackass belief is that the upcoming USDollar split into a foreign USD (preserved) and a new domestic USD (devalued) will have a Colombia dynamic resistance force involved. Billion$ of Colombia funds held in Panama banks will not want to go Panama Balboa unless it is formally gold-backed. It will remain in USD form, but seek regulatory authorities outside the USGovt purview. But the USGovt will continue to make and apply rules, as usual, in a highly bothersome manner. The USD split comes.

Here is the actual note from the strong USMil/USGovt source. On or about September 26th, he wrote, "The reason for the 72-hour delay apparently lies in the fact that Panama has for several decades been using the USD as its currency in place of its old currency, the Panamanian Balboa. I received a message from within the IMF that Panama had been in the process of preparing to restore the Balboa and dump the USD as its currency of trade. In order to accomplish that, Panama has been acquiring gold in order to provide asset backing. Additionally, they had never installed the Babylon II software within their banking system. On Friday, all banking institutions in Panama shut down for a four-day period in order to complete the changeover of software. That four-day period ends on Monday night at midnight [Sept 30th], and Panama will be Basel III compliant in preparation for the Global Currency Reset." The key points are that hidden developments are at work of significance to alter an important USD zone. The Babylon software conversion is an important upgrade to the system. The Basel III compliance is required to bring Panama into the stable position. The Stage #3 gold vault indicates a serious maturity in Panama not seen before. Big things are happening in Panama not visible.

Not content with just one report on Panama activities, the Jackass called upon a personal friend made in Panama, an American with over ten years of experience sauntering around Central America, Colombia, and other Andes nations. He is a reliable bright fellow with many local connections, like with Latino friends and a few men who work in their banking system, as well as a few attorneys. Since the November 2010 ruse about a tax sharing pact with the USGovt, the legal profession has suffered a 50% business cutback. It was a ruse, since promulgated by the USDept Treasury, but never even put to vote in the Panama Assembly for ratification. It served a purpose in scattering the gringos and wrecking the off-shore business, the likely motive from the start. This friend Marky offered information gathered on his own. He pointed out early on that Panama has no central bank per se, not in the usual sense. When news wire stories began, they referred to a bank shutdown by Banco Nacional de Panama. But it is merely a bank, to be sure a prominent bank whose example is followed by other banks. It is not the central bank. The gold backing evidence is being slowly verified. Secure facilities are being put in place.

The biggest item reported by Marky was the depository being created. But bear in mind it is a private facility designed to accommodate wealthy Europeans who no longer trust either Switzerland or London, as he mentioned directly to me in a message. The facility does bode well for rhyming with what the USM/USG source said. Mark wrote, "I know some German and Swiss guys that are involved in setting up a Stage 3 type depository for gold at the old Air Force Base. I do not know if it is active yet, but it jibes with Panama trying to back Balboas with gold. I know that at least one major bank here has accounts in other currencies, Euro for sure and Chinese Yuan too. Just to clarify, that facility was spearheaded by a German guy and a Swiss guy (not necessarily the Germans and the Swiss as an organized entity) originally for private accounts. They are trying to make it a international storage facility (such as Hong Kong) for international precious metals owners that no longer trust Europe (Swiss vaults with Allocated Accounts) or other facilities. It probably would qualify for the local government as well, but I can imagine they might use their banking network for such matters.

I suspect that Martinelli would have to adopt another [existing] common currency or start a new one. If he did, it would definitely have to be gold backed. Otherwise the currency speculators would tear it apart like they did with the Mexican Peso years ago. Plus, imagine trying to exchange Balboas when traveling abroad to Asia. It is probably like trying to exchange Colombian Pesos in Bangkok! Expect people to divide their accounts into local currency, and another very common currency like USD or Euro to be accepted when conducting business or travel worldwide. The bankers are very conservative in Panama. That is probably what saved them from investing in the US housing mess, the mortgage bond bubble, and the derivatives scam."

Marky went on to mention a friend who is actively investigating the events. So updates might be provided. He described President Martinelli as unlikely to adopt another flawed fiat currency unless it had a more secure backing like with gold. Apparently, over the last two years several prominent Expat Americans in Panama have expressed concern about being tied to the USDollar. Martinelli is a bit of a business bully, which is often necessary in dealing with corrupt Latin politicians. His wealth is from owning all the Super99 grocery stores and Dollar Stores, but he is a self-made man. I suspect he has been given stern advice from many of the Banking Council. Many of the banks are related by families. Panama is growing in population as young people are moving from Spain. They are also going to Colombia according to several locals in Medellin that he knows personally from travel and long visits. Any adoption of the Euro currency would accommodate the new financial refugees as well. Panama is also growing in Brazilians, some Argentineans, and of course, still Venezuelans.

Panama announced a 5-day bank holiday. Threat of imminent bail-in seemed clear or possible. That was the headline. But again, it was the individual prominent bank, and not a central bank. The debit cards system was taken offline. No wire transfers between banks and internationally were possible until the beginning of October. The system-wide shutdown had important implications. No warning was given to clients by the Banco Nacional de Panama. The people did not have access to ATMs either. The shutdown was timed over the weekend when payday came for people across Panama. The big question was for a Cyprus-style bail-in on private account confiscation, but none occurred. See the Silver Doctors article (CLICK HERE). It turned out that Banco Nacional de Panama reopened without incident. See the Silver Doctors article (CLICK HERE).

Recall that in October 2012, one year ago, President Ricardo Martinelli said, "In Panama the currency in free circulation is the American Dollar and I told the chancellor we are looking for ways for the Euro to become another currency of legal circulation and to be accepted in the Panamanian market." The goal would be to rework Panama to become a hub for Euro transactions within Latin America. But it would be a complicated transition to abide by two standards, especially if FATCA is indeed installed, serving two masters. The words by Martinelli were spoken at a joint news conference with German Chancellor Merkel in Berlin. His desired plan was based on full confidence in the German and European economies, which he expected would overcome the EuroZone debt crisis. But Merkel cautioned that as head of the currency bloc's largest economy, Europe needed to persevere with tough austerity measures and move towards closer banking, fiscal, and political union in order to secure the Euro's future. Martinelli has one year left in his term. See the Reuters article from 2012 (CLICK HERE).

◄$$$ SEVERAL NATIONS USE THE USDOLLAR WITHIN THEIR SYSTEM. SEVERAL NATIONS HAVE A NATIVE CURRENCY PEGGED TO THE USDOLLAR. CHANGES WILL COME TO BOTH SITUATIONS. $$$

The Panama system uses the USDollar formally, with a 1:1 Balboa peg the factor. The Hong Kong Dollar is maintained at a 7.74-7.77 peg, and has been in effect for years. The Chinese Yuan used to be pegged to the USDollar until July 2005. It now floats, but on a tight band to manage its rise very slowly, more like extremely slowly. The Ecuador system uses the USDollar formally also. Times are fast changing. These nations have plans put in place to manage a transition, or to manage a sudden crisis. Given the ongoing global financial crisis with no solution even pursued, nations are ready to take action. Two two key events to watch for are Panama shedding the USD and Hong Kong removing the USD peg. These are two large global banking centers. The impact on the USD prestige will be severe. The bell will be rung to move to Gold.

## BANKS AT WAR INTERNALLY

◄$$$ INTERNAL BANKER STRUGGLES ARE AT FEVER PITCH. THEY MIGHT SOON ATTACK THEMSELVES, AS THEY POSTURE FOR THE END GAME, MUCH WORSE THAN IN 2008. THEY WILL ATTACK EACH OTHER IN THE OPEN TO SURVIVE. THE RECORD MUST BE SET STRAIGHT. AIG WAS NATIONALIZED AND THE TARP FUND WAS CREATED AS A DIRECT BAILOUT OF GOLDMAN SACHS, WHICH WAS AT DEATH'S DOOR. THE NEXT STAGE COULD PIT THE GOLDMAN SACHS CONTROL ARM AGAINST THE ESTABLISHED JPMORGAN FORTRESS.

THE SHARKS ARE ATTACKING OTHER SHARKS, WITH SURVIVAL AT STAKE AND DIFFERENT FACTIONS AT ODDS. THE ALL POWERFUL GOLDMAN SACHS IS IN THE CROSSHAIRS OF SEVERAL POWERFUL BANKS, WHICH SEEK VENGEANCE. GSAX IS NOT WELL POSITIONED FOR A FULLY ENFORCED REGULATED BANKING WORLD. GSAX IS BLAMED AND HATED FOR THE 2008 BREAKDOWN AND BUSTS. $$$

The following comes from a Hat Trick Letter subscriber with former deep association with Wall Street itself immediately before the Lehman kill job, where the Fannie Mae and AIG assumptions were arranged neatly. It was not a systemic passive event that just happened. The 2008 events were late in planning to preserve the powerful titans, and to conceal the profound fraud, as well as to sustain the controversial derivatives that serve as an ethereal foundation to the US banking system. Put aside all the silly stories in explanation of mortgage bond weakness and Lehman falling. The entire cast of Wall Street banks were vulnerable, but Goldman Sachs was in the most control to direct events. The battle between GSax and JPM will resume. The following is an account from the client, his words, my edits for prose. He worked at Morgan Stanley from 1997 to 2000, and keep abreast of events from his London banker office afterwards in the fixed income division. As preface, a historical note. Back over 70 years ago, Goldman Sachs was formed because of an Old Boy Network among the Wall Street bankers. They did not permit officers of rank to come from a certain ethnic group from the Moses, Abraham, and David bloodline. So GSax was formed, loaded almost exclusively by the most talented men (later women) from the chosen breed. When the Clinton Admin came into power, the President chose Robert Rubin as his Treasury Secretary in a bold move that made history. Rubin was from the London Gold Office at GSax, with tremendous reputation and experience. Goldman Sachs moved from the black sheep to the primary wolf in the food chain, a completed full circle. They proceeded to lead in the pilferage of the entire Fort Knox gold reserve for Wall Street benefit, using Papa Bush connections on the logistic side with his ample CIA facilities.

Fast forward to today. Goldman Sachs is out to weaken the banking cabal so that in the end game, they can grab either Bank of America (BAC) or JPMorgan itself. What a great story the merger of GSax and JPM would be, not likely since enormous egos are involved, to pit Basel against the elite Goldman crew. Wells Fargo is simply too strong and Citigroup is a global giant, neither available for acquisition. Back in the mid-2000 decade, Hank Paulson was the figure who weakened BAC by forcing Merrill Lynch and Countrywide down their throats. They will not recover. In the meantime, JPM was forced to swallow Bear Stearns and Washington Mutual, also a difficult digestion. Although weakened, JPM was so large and so powerful, that they continue today. However, JPM is burdened by the Interest Rate Derivatives, which are a major drag on their true assets. This banker source believes that JPM tried to force Lehman down GSax's throat, a maneuver that backfired for everyone and led to the grand bust. In the end, the bank syndicate rescued Goldman Sachs, done under the USFed's direction when AIG went down. A giant 100% redemption was handed to GSax on CDS default insurance that caused great controversy, since no other firm was given such a sweet insurance payout. The USCongress frequently argues over the deal.

This civil war among the big banks broke out when each investment bank became keenly aware that they had played the last card with the subprime mortgage bonds, loaded with leveraged securities behind them, as the housing bubble broke from its own weight. It exhausted the last buyers, drawing for two years upon unqualified buyers. In essence, JPM forced Lehman onto GSax but the venerable criminal GSax refused to swallow the bond giant. This is his hunch, hard to prove categorically. Immediately, Lehman collapsed with a JPM hand involved in a cutoff of cleared funds from bond sales. It was brutal. Then in the domino chain, AIG collapsed, which meant actually that GSax collapsed. The nationalization of AIG by the USGovt was done to prevent publicity of the bankruptcy of GSax itself, amazingly. The entire TARP Fund was a disguised bailout of GSax. It was Hank Paulson who made the phony appeal, laden with lies, to aid his old firm, for which he still had loyalty. Paulson fell on his knees for a reason.

Goldman Sachs in the end game needs to acquire a bank, to morph into a commercial bank in structure, and to make usage of additional assets like a true vampire squid. Otherwise they are dead. The events will surely be interesting, since very likely GSax will be unable to pull off the switch. Wells Fargo is too strong, and kept at arm's length from the New York power center. Citigroup is too global and geopolitically not possible, since it has deep roots in Europe and Panama with CIA drug money. This leaves Bank of America and JPMorguen. When BAC was forced to acquire Merrill Lynch and Countrywide, it was to weaken them with a huge portfolio of wrecked impaired mortgage assets. Under the grand maestro direction by Paulson, the giant JPMorguen was bullied. In the end, during the dizzy sequence of events, JPM caved in and acquired Bear Stearns, thus taking over the silver short portfolio, and also acquired Washington Mutual with its massive mortgage portfolio holes. When GSax refused to swallow Lehman Brothers, the entire situation blew up. If GSax had accepted the Lehman wrecked portfolio, the Wall Street titans might have bought some time, but GSax might have died instead of just Lehman. It all blew up in everyone's face, and the public had to be told a credible story. The public had to accept the TARP Fund hidden bailout of Goldman Sachs itself. The hidden key factor in all the sequence was that it was quite clear with the collapse of AIG, that GSax was going to suffer a failure. This was the case since AIG underwrote the insurance contracts, the Credit Default Swaps owned by GSax. If AIG went down and died, then GSax would have gone down and died immediately afterwards as consequence. So AIG had to be bailed out, and the best way to do so was to nationalize it. By putting it under the USGovt roof, the bankers could keep it all quiet, limit the snooping noses and probing eyes of analysts and investigators. The public would not learn that the entire US banking system was insolvent and kaput.

To the present. Jamie Dimon (CEO of JPMorgan) probably stands in the way to obstruct any breakup of the big banks. A big publicly cheered breakup would enable Goldman Sachs to grab a few pieces and establish themselves as a banking entity, their longstanding goal. They want respect, although they command awesome control. If Glass-Steagall is re-instituted in a different form (like as the Dodd-Frank Financial Regulatory Bill) then GSax is actually doomed to die. This is because GSax has no depositor base and nobody will bail them out. They cannot even benefit from a sensational bail-in confiscation of private accounts, since none to seize. Therefore, it could be that GSax wants Jamie Dimon out of the corner office for their own survival in order to grab a banking franchise. This is astounding, since GSax might sabotage JPM in the end, like with derivatives or gold shorts, even silver shorts. Another reason persists. Dimon is arrogant and widely hated. He has rubbed more than a few people the wrong way. Dimon is widely reported to chase the wives of fellow executives, and to catch them for numerous dalliances. If justice prevails, Dimon will be sacked for the USTreasury breakdown and the derivative bubble in the process of breaking. This is sensational talk.

Contrary to what most people believe, the collapse of the derivative mountain is a fait accompli, not preventable, already in progress, well along. Nothing that GSax or JPM do can stop the derivative bust from unfolding in unbelievably gory detail. The USTBond asset bubble is breaking down, which makes certain the derivative bust since founded on more leverage and laden with more instability. Neither titan will go bust themselves, because Gold will be revalued higher so as to recapitalize the banks. After this move, a major transition will occur. The nation will make a healthy transition to traditional banking. However, Goldman Sachs will not have a business model. We are definitely in the end game and GSax is in absolute and utter survival mode. The source's best educated guess is that Jamie Dimon of JPMorgan wins and Goldman Sachs dies. JPM is the USFed's operating arm, a powerful syndicate center. The GSax machine has made too many systemic enemies, while Dimon has made a great many personal enemies. This civil war broke out in 2008 when everyone knew that the jig was up on the great housing and mortgage finance bubbles. The bust followed, but the denouement has not been written. There is great resentment within Wall Street and elsewhere, since GSax broke ranks and started the collapse for its own survival. Now many powerful entities went to wreck Goldman Sachs, which has grown too arrogant, and taken control too fast, after not being part of the Old Boy Network. Maybe some animosity persists since GSax stole more of the Fort Knox gold than any other firm. The battle will be full of intrigue, and very sparse on information.

◄$$$ BANKING AS ORGANIZED CRIME, PROTECTED BY THE USGOVT, RUN BY THE USDEPT TREASURY, ENFORCED BY THE REGULATORS, WITH FBI AS HITMEN. BUT IT IS COMING UNRAVELED QUICKLY. THE BIG BANKERS ARE NOT AFRAID TO BE SCENE IN FULL DAYLIGHT DOING CRIMINAL DEEDS. $$$

In a new edition toward exposure of organized banker crime, Canadian financial analyst Rob Kirby and German financial journalist Lars Schall discussed the recent dismissal by the US Commodity Futures Trading Commission of complaints about manipulation of the Silver market. In particular, Kirby and Schall focus on a powerful entity that is rarely mentioned in financial mainstream journalism, if at all. It is the Exchange Stabilization Fund. The Jackass has described its function several times, including in this issue in a previous chapter. It is the most important control fund in the world. See the Lars Schall interview (CLICK HERE).

◄$$$ FOUR BIG INTERNATIONAL BANKS OWN BOTH THE AUSTRALIAN BIG BANKS AND THE BIGGEST AUSTRALIAN MINING FIRMS. THEY ARE IN CONTROL FOR THE FINANCIAL ADJUSTMENTS AND RESET. THE STORY IS TYPICAL OF THE WESTERN FINANCIAL SUPER-STRUCTURES. IN THE WEST, BARCLAYS IS THE BANKER'S BANK THAT OWNS A SIGNIFICANT PORTION OF ALMOST EVERY IMPORTANT LARGE WESTERN BANK. $$$

From an Australian perspective. Australia has four large banks. They are Australia & New Zealand Banking Group (ANZ), National Australia Bank (NAB), Westpac, and Commonwealth Bank. Like many citizens in industrialized nations, Australians believe that their investments in these banks are protected by the government. Such is not the case, since inadequate funds protect investor deposits. Australian colleague LouP took a closer look at the integrated ownership of these banks, a vast incestuous network. The banking system in Australia is controlled by HSBC, JPMorgan, NAB, and Citigroup. Average Australians have no idea who owns their banks. The tree below displays the ownership of the largest banks in Australia. In parallel, Americans, British, and Europeans have no idea that Barclays owns a piece of almost every large Western bank. The companies in the upper echelon are the top four shareholders for all the banks in the following level.

Next, consider the largest gold producer in Australia, Newcrest Mining Ltd. Once more the same group of elite banks appear as prominent. The four financial firms which own Australia's banks also have substantial holdings in this large gold producing company. A simple Google search on the 20 top shareholders at HSBC produced a list of companies which had HSBC within their top 20 shareholders. The same shareholder examination for National Australia Bank, JPMorgan, and Citicorp found that the these four companies not only control a vast array of mining and industrial companies, but also pull the strings as banks under a different name. They therefore are in a position to withhold at key junctures the funding for the development of new gold mines and their extensions. Think coordinated gold price interventions, together with halted project funds for gold mine expansion projects. The conglomerate of big banks might have a greater priority to command and control the vast remaining reserves in the ground, more than to see the gold price achieve a higher level. The conclusion might be that when it suits them, the gold price will rise and their gold reserves will increase in value by multiples of the current value. What a dangerous situation when big banks control other big banks, control major gold producers, and control the funding for development of hard asset resources. Special thanks to colleague LouP Down Under.

◄$$$ JPMORGAN AND WELLS FARGO DISPLAY THE INSOLVENT US-BANK SYNDROME THAT WILL NOT GO AWAY. SIZEABLE LOSSES WERE ANNOUNCED. THE 2008 ERA MORTGAGE LOSSES HAUNT THE BIG US-BANKS STILL. THE NEXT ROUND OF INTEREST RATE DERIVATIVE LOSSES SHOULD BURY THE BEHEMOTH CRIME CENTERS. THE SIGNAL WILL BE THE RAMP-UP OF USFED BOND MONETIZATION, THE QE VOLUME UPSURGE. $$$

JPMorguen is teetering. They go to great lengths to hide the ugly harsh truth, that they are holding assets bearing no value. The headlines dominate mention of heavy ligitation costs, but they obscure the reality of insolvency and wrecked portfolio. The process will continue for more legal costs and more exposure of the worthless assets. JPMorgan has spent $8 billion on litigation and set aside $20 billion toward legal and regulatory costs since January 2010. Those expenses will remain elevated for the next year or two, admitted CEO Dimon. The firm faces an investigation of its hiring practices in Asia, and a criminal inquiry into its energy trading business. A new investigation opens every month on their criminal enterprise. The official posted loss was $380 million, compared to a $5.71 billion profit in Q3 a year ago. Mortgage fees and related revenue plunged 65% to $839 million, compared with $2.38 billion a year earlier. The net interest margin, which measures the profit margin on lending, narrowed to 2.18% from 2.43% a year earlier and 2.2% in 2Q2013. It continues down.

A major blemish was seen in the decline in the average VaR (Value at Risk) from $122 in 3Q2012 to just $45 this quarter. Bottom line is rapidly shrinking assets and no economic earnings extant. What one sees is financial management of earnings. The core business of lending is slowing on the retail and commercial side, while the trading business is suffering from volatility and lack of volume. In the hidden cracks are massive derivative losses, which will bring onto the horizon more London Whale sightings and outsized losses. The Wall Street mavens and talking toots used to love praising the always steady breeze of JPMorguen earnings. No more, just the pungent odor of a financial morgue! It was the first quarterly loss since 2004 under CEO William Harrison. Get ready for more JPM losses, especially if they are forced to show derivative losses. See the Zero Hedge article (CLICK HERE) and the Bloomberg article (CLICK HERE).

The Wells Fargo story was different, but it rhymes. It would be erroneous to say WFC posted a loss. It is deceptive to report a $5.6 billion quarterly gain. Their quarterly statement was replete with balance sheet juggling. The big sore thumb sticking out was the $900 million release from Loan Loss Reserves, at a time when they urgently need to rebuild such reserves. The mortgage losses are not finished. The dumping of REO homes from foreclosures have still more losses from sale in store. The lawsuits and litigation costs will show more losses. Yet they took a whopping slice from reserves in order to boost earnings and maintain trend. Wells Fargo is the most leveraged of the big banks in terms of exposure to housing. The other shocker was the continued decline in Net Interest Margins (NIM), which persist despite rising rates. Normal conditions would show that rising rates signal a stronger economy leading to rising net interest margins. In 3Q2012 the NIM was 3.66%. The NIM remains in decline, at 3.38% for 3Q2013. The USEconomy is addicted to lower rates. Higher rates actually set off nasty delinquencies and lower demand for loans. See the Zero Hedge article (CLICK HERE). With the big US banks struggling, everything is on schedule for QE to ramp higher by the onset of 2014, if not earlier. The big US banks are in trouble, still under distress.

◄$$$ JPMORGAN’S LEGAL HURDLES ARE EXPECTED TO MULTIPLY. THE WASHINGTON MUTUAL BALL & CHAIN WILL NOT GO AWAY. THE PROBLEMS INCLUDE MORTGAGE BOND SECURITIES ALSO. SUDDENLY THE COST OF DOING CRIMINAL BUSINESS IS RISING. A $20 BILLION GROUP SETTLEMENT IS BEING FLOATED, ENOUGH TO SHOCK THE JPMORGUEN LEGAL BEAGLES (MAFIA CONSILIERI). $$$

The nation's largest bank is JPMorguen, a sprawling bank created in a long string of bank mergers over two decades to form a giant, too big to manage. It braces for a lawsuit from federal prosecutors in California. The allegation is shoddy mortgage securities sold to investors without proper representation during the boom year leading to the financial crisis. Notice the nice sounding terms for packing toxic and fraud-strewn mortgage bonds to the unsuspecting. The high profile case could foreshadow other actions in a never ending legal nightmare, many of whose cases have been cited in the Hat Trick Letter. On the other coast, federal prosecutors in Philadelphia are reported to be investigating JPMorgan's sale of mortgage securities. Crime has been a regular cost of doing business, but the tag might be multiplying.

The bank seeks class action settlements, of course with no guilt admitted. The scope of criminal activity is mindboggling and fear reaching. Apparently, JPMorgan and the USDept of Housing & Urban Devmt revealed the possibility of striking a broad settlement to conclude many of the looming mortgage investigations from federal authorities and state attorneys general. In fairness to JPMorguen, the acquisition of mortgage giant Washington Mutual (WaMu) has dragged them down. The assumption of the WaMu legal liabilities should have been managed in 2009, except for the confusion of the numerous game saving acquisitions conducted by Wall Street. However, not so fast, as they say!! HUD has divulged a price tag in the neighborhood of $20 billion for the settlement. The series of individual cases could easily amount to many $billions more since $trillions are involved in fraudulent mortgage bond underwriting. They were assembled with multiple income streams, juggled MERS property titles, horrendous subprime loans not identified, unverified income on underwriting, mis-appraised properties, counterfeit bonds, and far more violations. The legal settlements could sway the public opinion far more out of favor for the big banks, who have been unswerving beneficiaries of USGovt bailout largesse. Let it be known that the mafia consilieri at JPMorgan counsel were stunned by the size of the proposed penalty. They had expected to pay a fraction of the $20 billion sum. If agreed upon, a major hallmark story for the decade in criminal settlements would be forged. See the New York Times Dealbook article (CLICK HERE).

◄$$$ WALL STREET HAS FOUND A WAY TO ATTACH A VAMPIRE SQUID TUBE ON STATE PENSION FUNDS. THEY ARRANGE FOR HEDGE FUND MANAGEMENT, THEN LOCK IN ANNUAL FEES, PAID BY STATES ALREADY ON THE BRINK. $$$

Matt Taibbi is irrepressible and valiant. He has pointed out the flaws of enlisting Wall Street to help manage public employee pension funds at the state level. The end result is a repackaged fund that pays out huge fees to New York based hedge funds. The Rhode Island test case was applauded by President Obama and the mole Rahm Emanuel, who infests Chicago currently. The hedge fund solution was a scam. In the final wash, a ripe $1 billion in fees was paid to the hedge funds for their expert management of Rhode Island state employee pensions, equal to 14% of the fund. So the states that follow this wondrous model can expect to add to the taxpayer burden, not secure the future financial security of its state workers. The solution promoted by Gina Raimondo in Rhode Island had a tool kit to serve as a model.

The Rhodes Scholar allowed her state to be used as a test case for the rest of the country, promoted by powerful financiers with a national view, who wanted to push pension reform down the throats of taxpayers and public workers from coast to coast. The chief beneficiaries among the hedge funds in New York were Dan Loeb's Third Point Capital ($66 million in fees), Ken Garschina's Mason Capital ($64 million in fees), and Paul Singer's Elliott Mgmt ($70 million in fees). The funds stand as a group to be paid tens of $million in fees every single year by the already overburdened taxpayers of her ostensibly flat-broke Ocean State. The gangsters Loeb, Garschina, and Singer happen to serve on the board of the Manhattan Institute, a prominent conservative think tank with a history of supporting benefit-slashing reforms that slash benefits. So the movement is for higher fees but lower benefits, typical of the Wall Street tradition. The institute named Raimondo its "Urban Innovator" for 2011, in Satan's service. See the Rolling Stone article by Taibbi (CLICK HERE).

◄$$$ HUNGARY HAS BOOTED THE ROTHSCHILDS OUT OF THEIR COUNTRY. THE NATION PLANS TO ISSUE DEBT-FREE MONEY. $$$

Hungary has turned a new page in modern history. Not since the 1930s Germany has a major European country dared to escape from the clutches of the international banking cartels controlled by the Rothschild family. The challenge is waged against financial tyranny. Back in 2011, Hungarian Prime Minister Viktor Orban promised to dole out justice on the deeds of his socialist predecessors, who submitted the nation to debt slavery under the rein of the Intl Monetary Fund. Curiously those earlier administrations were riddled with Israelis in high places. Orban has now moved to remove the usurers from their exalted posts. The rugged prime minister told the IMF that Hungary neither wants nor needs further assistance from the proxy operating with ties to the US Federal Reserve Bank. The unaccountable central bankers are cut off. In a bold step, the Hungarian Govt has assumed sovereignty over its own currency. It now issues money no longer linked to debt. The results have been nothing short of remarkable. Their economy is no longer beset by debt service. See the Dark Moon Daily article (CLICK HERE). Be on the watch for cartel vengeance.

◄$$$ VATICAN BANK PLANS TO CLOSE ALL EMBASSY ACCOUNTS AND OTHER DIRTY MONEY ACCOUNTS. THE GLOBAL OFF-SHORE PARADISE IS SHUTTING ITS DOORS. THE LONG SKEIN OF VATICAN CONTROVERSIES IS BEING DEALT WITH IN A SANITATION PROJECT. AT RISK ARE BIG USGOVT OFFICIAL ACCOUNTS FROM STOLEN FUNDS. $$$

Some high level hand is directing the Vatican to clean up its act, to shut down the many avenues for illicit funds to seek a safe haven as concealed accounts. My source indicates it is the White Dragon Family directing the reform pressure. The Vatican Bank is the object of scrutiny and reform. Its officials suspect tainted money occupies many accounts. More than 1000 customers who have no business holding accounts at the Vatican Bank must remove their funds and leave town. They have located more than 300 million Euros at the once secure bank, money the institution's officials suspect is illicit. They are calling for the funds to be removed, to go home even if under scrutiny. The church state (a sovereign nation technically) has sought the aid of a consulting firm as part of a change in strategy, where it moves away from secrecy, toward more transparency, seeking more integrity. The embattled Vatican has been troubled by bank affairs ever since the Commission for Works of Charity was established in 1887 (its actual formal original sin name).

An ongoing battle has been waged with the Italian Govt, which constantly works to seize the protected church assets in legal expropriation maneuvers. Over the decades, this financial institution, which was later rechristened as the Institute for Religious Works (IOR), has been accused of deep involvement in Sicilian mafia money laundering, stock market manipulation, and illegal transactions worth $billions channeled through the bank vestibules. It also played a key role in the 1982 collapse of Milan's Banco Ambrosiano, the largest bank crash in Italian history. In the 1990 decade, Italian industrialists used the IOR spin-off to launder huge bribes for politicians. More recent controversy centered on CEO Ettore Gotti Tedeschi over a vast money laundering investigation in May 2012. See the Zero Hedge article (CLICK HERE).

Keep in mind that three types of funds dominate in Vatican Bank accounts. They are mafia money, narcotics money, and money stolen, often by the USGovt officials. The various embassies are neck deep in money laundering of narco funds. Obama, Hillary, Geithner, Paulson, and other figures have secret bank accounts valued in the $billions at the Vatican, placed from stolen Funds like the Falcone account. The methods are from a common theme. Big transfers are held up, lawyers enter the fray, the parties murdered, and funds stolen, then secured in the Vatican. An unsual source of information has told the Jackass many stories, with the USDept Treasury hiring the hitmen to remove both claimants and their attorneys, of course to keep America strong and to defend liberty. That officials fill their pockets is a mere side effect of the preserved national security.

◄$$$ CYPRUS-STYLE WEALTH CONFISCATION IS NOW STARTING TO HAPPEN ALL OVER THE GLOBE, WITH A ROOT LOCATION IN EUROPE. POLAND SNATCHED PRIVATE PENSION FUNDS IN ORDER TO REDUCE ITS SOVEREIGN DEBT. ICELAND IS BACK-TRACKING ON PAST PROMISES OF ACCOUNT PROTECTION. BOTH NEW ZEALAND AND CANADA ARE MAKING PROGRESS ON THE SAME PATH TO CONFISCATE PRIVATE ACCOUNTS. THE MODEL HAS BEEN ADOPTED BY THE EUROPEAN COMMISSION, ALONG THE CYPRUS LINES. $$$

The Bail-in confiscation of private accounts and funds is gathering momentum, becoming an accepted practice all across the world. No bank account or pension fund is safe, as a result of profound systemic insolvency. The Cyprus-style wealth confiscation model is spreading in several nations like a cancer. Europe has written the template. The European finance ministers have agreed on a plan that would make Bail-ins the standard procedure for rescuing large broken banks in the future. CNN reported, "European Union finance ministers approved a plan for dealing with future bank bailouts, forcing bondholders and shareholders to take the hit for bank rescues ahead of taxpayers. The new framework requires bondholders, shareholders, and large depositors with over 100,000 Euros to be first to suffer losses when banks fail. Depositors with less than 100,000 Euros will be protected. Taxpayer funds would be used only as a last resort." The precedent that was set in Cyprus is being used as a template for establishing bail-in procedures in Poland, Iceland, New Zealand, and Canada, fanning out soon to strike the United States as well. From now on, anyone who keeps a large amount of money in any single bank account or retirement fund is acting very foolishly. For overview, see the Economic Collapse article (CLICK HERE) and the Silver Doctors article (CLICK HERE).

In Poland, private pension funds were raided in order to reduce the size of the government debt. The Polish Govt announced it will transfer to the state many of the assets held by private pension funds, slashing public debt. In the process, it put in doubt the future of funds worth in the billions of Euros, many of them foreign owned. They make it seem like a complicated legal maneuver, but they simply stole private assets in a unilateral decision without reimbursement in any form. A legal challenge is forthcoming, since the pension funds have called the maneuver unconstitutional. Nothing was offered in compensation. The confiscation was limited to private funds within the state guaranteed system, the transfers made to a state pension vehicle. Private stock assets would not be taken. Prime Minister Donald Tusk promised to confiscate the remainder of pension holdings, to be placed in the state vehicle over the next 10 years before savers hit retirement age. The black hole of the state has drawn funds to vanish.

In Iceland, the previous blanket guarantee for bank accounts is about to be reduced to EUR 100,000. Past applause has been over breaking the banks down in liquidation, even some legal attacks during the last financial crisis. The question has arisen whether the door has been opened for haircuts applied on larger accounts. The Emergency Act was reafrmed twice since the crisis that hit the remote island nation in October 2008. The Icelandic Govt at that time declared all deposits in domestic financial institutions were guaranteed. The changes came with coincidental timing to the current stalled talks between domestic bank creditors and the government over haircuts and lifting capital controls. Banks have restricted the outflow of funds at around $8 billion.

In New Zealand, the implementation of a Bail-in system to deal with any future major bank failures has been discussed. A Cyprus-style solution to bank failure is being promoted, the design being for small depositors to lose some of their savings in funding big bank bailouts. Such is the claim of the Green Party on watch. The formal name is given as the Open Bank Resolution (OBR) led by Finance Minister Bill English as the favored option. If a bank fails under OBR, all depositors will have their savings reduced overnight to fund the bank bail out. The formula is simple, whereby depositors would have their savings shaved overnight by the amount needed to keep the bank in a solvent condition.

In Canada, they are moving toward adopting the same Bail-ins to handle bank failures. The policy has become part of the new official Canadian Govt budget process. Within the "Economic Action Plan 2013" submitted to the House of Commons, the formal rules have been proposed to implement a Bail-in regime for systemically important banks in Canada. The plan was likely being hatched long before the crisis in Cyprus ever erupted.

◄$$$ ITALY’S OLDEST BANK MONTE PASCHI HAS COMPLETED A BAIL-IN OF BONDHOLDER ASSETS TO THE TUNE OF $650 MILLION. IT IS THE FIRST EUROPEAN BANK TO SUFFER THE CONFISCATION OUTSIDE CYPRUS. THE PRACTICE WILL NEXT PICK UP MOMENTUM ACROSS THE CONTINENT. A LEGAL BATTLE IS COMING FOR CERTAIN, TO ARGUE OVER WHETHER THE BAIL-IN IS A DEBT DEFAULT EVENT COVERED BY THE CREDIT DEFAULT SWAP CONTRACT. THE JACKASS GUESSES NO, SINCE ONLY A COUPON RENEGE ON UNDATED RARELY SEEN NOTES, AND NOT A FULL BOND BUST WITH BANK FAILURE. $$$

The Dieselboom template has finally been used at a big European bank. Monte Paschi halted coupon payments on Tier 1 bondholders, effectively bailing in $650 million in notes to recapitalize the bank. It is the oldest bank in Italy, based in Siena. It suspended interest payments on three hybrid notes after European authorities demanded bondholders contribute to the restructuring of the failed Italian bank. Under the terms of the undated notes, the lender is legally permitted to suspend interest without a default, and is not required to compensate for the missed coupons when payments resume. While the maneuver seemed harsh, it is proper for bank corporate bondholders to be the first losers in a bank failure event. The bank officials warned that Tier 2 bondholders are also soon likely to lose on coupon payments.

At risk also is about EUR 2.6 billion of more senior Upper Tier 2 debt in three issues, done in the form of Euros and British Pounds. Payments are not expected to continue. The next big question is whether the important ruling body on bank derivatives (ISDA) will decide that a bondholder bail-in qualifies as a default. Such a ruling would result in the payout of Credit Default Swap contracts. The Jackass guesses no on CDSwap payouts, since the big banks would be required to part ways with their precious funds. No bank failure was announced, and the unusual notes are undated. The CDSwap contract to insure against losses on subordinated Monte Paschi debt covers a total of EUR 10 million of their junior bonds for five years. The cost is EUR 2.1 million in advance and EUR 500,000 annually, according to CMA. It signals a 49.5% probability of default within the timespan. The swap contracts stipulate that the insurance holder be paid face value in exchange for handing over the underlying securities, or the cash equivalent, in the event that a borrower fails to conform to its debt agreements. It will be interesting to watch Monte Paschi. See the Bloomberg article (CLICK HERE).

## THANKS

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