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

* Monetary Shrapnel
* USTreasury Bond Travesty
* Beyond Tipping Point
* Dead Banks of America
* European Contagion & Fracture
* Germany as Gatekeeper
* USEconomy Retreats Again


HAT TRICK LETTER
Issue #90
Jim Willie CB, 
“the Golden Jackass”
14 September 2011

"Gold is the money of kings, silver is the money of gentlemen, barter is the money of peasants, but debt is the money of slaves." ~ Norm Franz (from "Money & Wealth in the New Millenium")

"There are two ways to conquer and enslave a nation. One is by the sword, the other by debt." ~ John Adams (1826)

"I thought the USGovt debt downgrade was irrelevant. It did not reflect the strength of the USEconomy and the US political system." ~ Hillary Clinton (Secy of State, narco baroness)

"We are going to be gifted with a Health Care plan we are forced to purchase, and fined if we do not, which purportedly covers at least ten million more people, without adding a single new doctor, but provides for 16,000 new IRS agents, written by a committee whose chairman says he does not understand it, passed by a Congress that did not read it but exempted themselves from it, and signed by a President who smokes, with funding administered by a Treasury chief who did not pay his taxes, for which we will be taxed for four years before any benefits take effect, by a government which has already bankrupted Social Security & Medicare, all to be overseen by a Surgeon General who is obese, and financed by a country that is broke!! What the hell could possibly go wrong?" ~ Donald Trump

MONETARY SHRAPNEL

◄$$$ MUSINGS. DISTRACTION LABELS AND CONCEPTS ARE BEING TOSSED AROUND BY THE PRESS. BEWARE OF SYSTEMIC FAILURE, ECONOMIC COLLAPSE, AND FINANCIAL MARKET RUIN IN FRONT OF YOUR EYES. THE EUPHEMISMS ARE TELLING. $$$

A great deception is being perpetrated. It is over important keywords used. The reality is breakdown, disintegration, insolvency, bankruptcy, the stuff of systemic failure, all of which terms are actively avoided by the financial press networks. Notice the emphasis of words like volatility, uncertainty, trust, confidence, anxiety, each bandied about with a tone of alarm. These words are euphemisms that attempt to soften a growing crisis with panic. The financial crisis has turned chronic and embedded. The heightened supposed liquidity solutions have brought nothing positive, as the need for asset protection is extreme. The populace must contend with the lack of spending power, job insecurity, and higher costs, the telltale downdrafts of powerful recession. The media mentions how the USEconomy is suffering mightily from falling credit quality, multiple years of housing distress, a stalled recovery (never occurred in reality). The monetary system has been weighed down powerfully by the ongoing global financial crisis, chronic budget battles, urgent austerity measures, and political battles in the open amidst stalemate. What seems not mentioned ever is the need for the United States to bring back home its industrial base, the one sent to Asia over a 30-year period. The ravaging effects of globalization are seen across the Western world.

Americans are slowly awakening to the systemic failure, the broken USEconomy, the absent potential for recovery, the political apparatus incapable of responding, the compromised banking system tapping the USGovt largesse, and the widespread neglect of the Main Street popular concerns. The panic stage has begun, as the populace senses a renewed backward slide with nothing fixed and almost all policy measures yielding futility. The language of the news media has changed, a disguised doom built in the keywords. A great unease has entered the US citizenry consciousness. The global recession will make that discomfort much worse. The government policy response, more of the same except bigger futile useless bumbling initiatives, will reinforce the public perception of the systemic failure in progress. All policy response has aggravated the problems. American citizens will face a quantum leap in shock when the USGovt pursues and captures pension funds and bank certificates. The USTreasury Bond asset bubble must be nourished. All channels will be exhausted. Refer to 401k, IRA, and Keough funds, all of which will eventually be forced into USTBonds or else lose their tax exempt status. Refer to bank certificates of deposit, all of which will eventually be forced into USTBonds or else lose their depositor guarantees.

◄$$$ A RENEWED CRISIS IS AT THE DOORSTEP, 2008 AGAIN BUT WORSE. TWO KEY DIFFERENCES STICK OUT. THREE YEARS OF 0% ACCOMPLISHED NOTHING. INTEREST RATES CANNOT BE REDUCED FURTHER. AS USTBONDS GAINED IN PRINCIPAL VALUE DURING THE DEAD MAN RALLY, SO DID GOLD RISE SUBSTANTIALLY IN PRICE. THESE ARE NEMESIS VEHICLES. THEREFORE ALL SAFE HAVENS ARE BEING PURSUED LIKE LIFEBOATS AT A TIME WHEN MOST WEAPONS HAVE BEEN EXHAUSTED. THE USFED HAS DECLARED SURRENDER, YET FEW SEE IT. BIG CHANGES HAVE ARRIVED IN THE FORM OF BIG BANK INSOLVENCY AGAIN, IMMINENT RECESSION, SOVEREIGN DEBT CONTAGION, FINANCIAL MARKET PANIC, HOUSING MARKET RUIN, FISCAL BUDGET DEFICITS OUT OF CONTROL, RAIDS FOR GOLD IN FOREIGN WARS, AND COMPETING GOLD EXCHANGES. NOTHING IS THE SAME EXCEPT THE IMMINENT BREAKDOWN COMPARED TO 2008. $$$

The financial press reports that the current financial situation, a chronic crisis that has festered for three full years, is approaching another breakdown event. The promoted distorted theme is that this is 2008 all over again. The key differences fill volumes. The biggest differences in reality are headline issues that paint a totally distinctively different world. Zero Hedge points out that substantial upward moves in the long-term USTreasurys have provided hefty 8% and 16% gains. The USB 30-year bond principal has risen from the 120 to 140 level. The UST 10-year bond principal has risen from the 120 to 130 level. These are strong gains, but half the size of the gigantic 40% gains in the USB in the last two months of 2008 following the Lehman bankruptcy. It rose then from 100 to 143. Here in year 2011, the well-established near 0% official interest rates are fixtures, even promised in a ZIRP through mid-2013 by the hapless dishonored USFed that lacks any tools or ammunition, despite what they claim. The seizure in capital market liquidity, especially in Europe, may be the most obvious parallel between the two time periods. The inter-bank lending, money markets, and wholesale channels are under deep distress.

Another headline difference is that Gold and USTreasurys are rising together, something almost never to occur. The value of longer-term 30-year US Treasurys has risen by 14.75% since the beginning of July. Over the same period, the $US denominated value of Gold has risen from $1482 to the $1850 neighborhood, a similar 25% rise. All this has happened while the US$ DX index has been relatively quiet, even flat until the last two week on a 4% rise from 74 to 77. Never forget that USTreasury securities and Gold are bitter nemesis entities in the financial system. USTreasury debt is the foundation of the global monetary system, an upside-down design destined to ruin. Gold is the polar opposite of the global monetary system, the venerable vote of No Confidence in the fiat paper money charade with the illusion of central bank monopoly control. The monetary policy stuck at 0% and Gold running in correlated fashion with USTreasurys are missed items, seriously overlooked stories. One can say that Gold in terms of every major paper currency has gone ballistic. See the Zero Hedge article (CLICK HERE).

My analytic take is similar but with much more to fill in the contrasted background that in no way resembles 2008. The biggest points of differences in my view are a 0% official interest rate stuck as policy that has accomplished nothing except to continue to stoke the gold cauldron. The sovereign debt crisis had not even begun in 2008, now in full bloom and in contagious mode. The higher entire cost structure has come from a few rounds of debt monetization, euphemistically called Quantitative Easing. The big Western banks have not recapitalized, despite what is reported, almost every bank having passed on opportunities to sell stock on the secondary market at higher prices. That door is closed, after huge stock price declines. Lastly, the $4.7 trillion in central bank new money has been wasted without any tangible benefit including to the bank sector. They have dumped toxic bonds on the USFed and Euro Central Bank, and assured themselves of grand bonuses in reward for presiding over fraud and ruin that has invited a flurry of bond investor lawsuits. So with 0% stuck, sovereign bond turned viral, higher costs in place, and mountains of wasted money, nothing looks similar in the foremost headline factors. As in nothing!!

The fiscal and monetary fronts seem in desperation mode, as policy reacts like spastic twitches. The USGovt debt limit has been breached again and again. Three years of 0% rates, a skein of QE initiatives for over a full year has gained and secured nothing. A ripe $4.7 trillion in rescues, bailouts, stimulus, all failed to set banks in a viable position. The USFed openly admitting to have no more available tools, a spent arsenal. Central banks have unceremoniously joined the Global QE, showing desperation (see Swiss, Japanese). Open disputes and revolt between Euro Central Bank and German Bundesbank are being fought. The big Western banks are teetering on failure, their high debt insurance prices telling the story, just like Lehman and Bear Stearns did three years ago. Consolidation of Wall Street banks has turned sour, with poster boy being the doomed Bank of America. The insolvent big US bank stumbles around, as many of the banks respond to lawsuits. Bank of America seeks cash infusions to stave off bank failure, finding it in misguided Berkshire Hathaway investments and asset sales. The Royal Bank of Scotland serves as the London poster boy of bank failure. The Bank of New York Mellon charges fees for bank deposits. The Too Big to Fail policy toward big US banks has begun to become a challenged mantra. The Western Economy is not responding to stimulus, entering recession again. Budget austerity has arrived in force, with attempts to reduce spending. All indicators look horrible in an undeniable billboard, urging government action. But they are clueless except for more Panhandle Doctrine aid to consumers and Parasite Doctrine aid to banks. None of these fiscal, monetary, and banking factors is the same as 2008.

The sovereign debt crisis is all new and extremely foreboding in danger, a new development. The advent of sovereign bond breakdowns turned viral after Dubai in November 2009. The Southern Europe sovereign debt crisis has in the past 18 months spread from Greece to Italy and Spain. The harsh spotlight of crisis has begun to shine on France, a veritable PIGS lookalike. Distrust among banks is high, seen in absence of inter-bank lending. The Credit Default Swap contracts are openly cited, no longer a hidden domain. The financial markets are in turmoil, seen across many individual markets. My spring 2011 forecast of USEconomic decline and US Stock market decline exploited by a USTBond rally to aid the funding of USTreasurys has occurred on schedule. The USTreasury long-term bond yields at 2%, not 4% like in 2008. Widespread stock market declines usher in panic, a new phase.

The housing market has become a monster with boils and excrement in the rear flank, not showing improvement but rather exposing a deep cancer and severe rot. The housing decline has turned chronic, causing despair among the people who cannot draw money from their equity ATMs. The monstrous climb in bank owned homes taken in foreclosure, the Shadow Inventory, is entirely new, a grand boil whose pus will continue to drip on the USEconomy for another two years. The housing market cannot clear and find a bottom in home prices, an impossibility. The MERS title database has been discredited in court, shown repeatedly in the last year to have zero legal standing. The hidden rise in strategic home mortgage defaults is also new, as people demand proof of title and win court challenges. The USGovt has actively avoided meaningful home loan balance reductions, since so costly to the banks that control the government policy levers. In a motion to display a schism, the USGovt has filed lawsuit against 17 big US banks for bond fraud restitution. The housing decline reveals an aggravated feature, as does renewed bank system insolvency.

The gigantic USGovt fiscal deficits off the charts have become the norm, as the USGovt political gridlock and stalemate prevent progress. In 2008 came the advent of over-$1 trillion deficits. Forecasted precisely by the Jackass, the USGovt deficits have zoomed to $1.5 trillion and stayed there. US politicians are openly mocked for their empty battle cries for job creation, lacking substance. Their grandstanding is seen as perverted displays that demonstrate a shocking ignorance of capitalism. They still do not pursue the return of industry dispatched from America to Asia. Then Obama's biggest accomplishment is the Health Care plan, a cripple to small business. Expect a $2 trillion USGovt deficit next fiscal year, certain to shock the entire world financial system and expose the USTreasury Bond market as an asset bubble and Ponzi Scheme that has run its course. The fiscal woes are all new and worse.

The entire North Africa & Middle East regions are in turmoil, a great threat to stability but also a convenient opportunity for pilferage. A hefty $90 billion has been frozen (stolen) from Libyan Funds. A hefty $60 billion has been sequestered from Egyptian Funds. The Gold market has changed radically, as battles and accusations and depletions occur in more open view. A new Gold exchange has opened for trade in competition in Asia and Singapore. The COMEX is being drained of its Gold & Silver inventory. Abusive diversion of GLD & SLV metal holdings during backdoor removal of inventory has occurred, complete with accusations and evidence offered in public stages. The Arab region in flames is all new. THE ONLY SIMILARITY TO 2008 IS A BADLY BROKEN CONDITION AGAIN BUT THIS TIME WITH NO AVAILABLE TOOLS !! See the Jackass public article "False Comparison to 2008" on the GoldSeek website (CLICK HERE).

◄$$$ THE OBAMA $447 BILLION STIMULUS PLAN IS LOADED WITH CALLS FOR URGENCY, ACTION IN NATIONAL INTEREST, BUT IT ALSO CONTAINS THE USUAL DECEPTION. IT IS NOT PAID FOR BY SPENDING CUTS AS HE PROMISED, BUT RATHER BY TAX HIKES WHICH WILL ASSURE OBSTRUCTION IN ITS PASSAGE. $$$

President Obama outlined a $447B jobs plan in his speech to the USCongress that made great theater. Expectations for the total package had been in the $300 billion range, so larger on arrival. The package was presented as new, when it was more a table pounding repeat of the same, but with a few compromises built into it. Notice the tilt to smaller businesses in the payroll tax cut. Notice the puny amount dispensed to states, when need 20x as much. NOTICE NOTHING ON HOME LOAN BALANCE REDUCTION AGAIN. The plan calls for:

  • $240B: cutting the employee payroll tax in half for 2012, cutting the employer payroll tax in half for 2012 on only the first $5 million of payroll, and eliminating the tax for new job hires
  • $62B: extending unemployment insurance benefits for another year
  • $50B: immediate investments in roads, rails, and bridges
  • $35B: for state & local governments to prevent teacher & police layoffs
  • $30B: to modernize schools
  • $10B: for a national infrastructure bank to leverage private & public capital that invest in infrastructure projects
  • $5B: extension of tax break for companies to expense plant, equipment investments.

Obama claimed that the cost of the entire plan will be offset by an increase in the spending cuts to be proposed as part of the official upcoming long-term deficit reduction proposal. The reality is quite different, better described as a lie. The Second Stimulus Plan runs at a cost of $312k per job created or saved, a huge amount for meager response. The flakey economic impact is an estimated $300 billion increase to GDP as the miracle yields 1.9 million new jobs, and saves a big heap of unquantifiable jobs to boot. The President designed the payment system to happen over 10 years. If at $475 billion in direct expenses, even at a mere 2.5% interest paid, another $120 billion is added in finance costs. The actual payment for the entire stimulus package is hardly what the leader promised. Grotesque 5:1 payback in Keynesian inefficiency American style strikes again. Footing the bill is from tax hikes elsewhere, exactly what opposition political camps object to, enough to obstruct its passage. Jack Lew from the Office of Mgmt & Budget Director gave some information that was aptly missing from the original dramatic presentation with glaring ostentation. The list of tax hikes to pay for the stimulus plan is diverse, which make difficult the passage. Spending cuts are nowhere to be seen, as promised.

  • Limit on itemized deductions for incomes over $200k
  • Taxing carried interest as ordinary income
  • Removing Oil & Gas industry tax breaks
  • Making depreciation for corporate jets the same as commercial jets.

So Obama lied, since tax hikes support the entire stimulus plan, which is not at all paid by spending cuts. Like with George W Bush, the future forecasts are cited as grand benefits, whereas the reality is economic ruin and not brisk growth. Remember Bush actually forecasted massive budget surpluses by year 2010, one of the biggest forecast travesties in USGovt history. He made the lunatic forecast at the time of his staggering tax cuts to the wealthy, who were expected to increase business investment in the USEconomy. They did so in foreign lands, principally China, and pocketed big executive bonuses. See the Forbes article (CLICK HERE), the Bloomberg article (CLICK HERE), the Zero Hedge article (CLICK HERE).

◄$$$ CHINA REGARDS GOLD AS THE WEAPON TO UNSEAT THE ANGLOS FROM POWER AND TO NEUTRALIZE THEIR INFLUENCE. CHINA OWNS OVER $3 TRILLION IN RESERVES. INCREASINGLY, THE WORLD WILL FOLLOW THE CHINESE LEAD. ALL B.R.I.C. NATIONS DO. $$$

The backdrop is a Gold price stable above the Jim Sinclair stated critical $1764 mark, sovereign debt crumbling across Europe, factional fighting among European bankers, the USTreasury Bonds sucking up capital at the expense of the business sector, big Western banks in dire straits of insolvency, and panic hitting the stock markets. Another WikiLeaks story has come out with potential explosive impact on the price of Gold, which has been flirting with the $1900 level. The WikiLeaks release of US State Dept internal cables has revealed the Chinese plan to undermine the USDollar by means of the gold mechanism. The embassy cable has a label (09BEIJING1134) which exposes both the clandestine operations at the USFed and USDept Treasury. According to their National Foreign Exchanges Administration, China's gold reserves have recently increased, but the majority have been located in the United States and European countries. The USGovt has a deep vested interest to see other countries not turn to Gold reserves in lieu of the USDollar or Euro. The suppression of Gold is essential for maintaining the USDollar role as global reserve currency. Many nations, especially in Asia and South America, look to China as model for emulation. Large gold reserves are beneficial in promoting the internationalization of the Chinese Yuan currency, making it fully convertible.

Tyler Durden, bruised but ever bold, believes that Gold at double its current price will also be cheap. He wrote, "The leaked [State Dept] cable explains why Gold is, to China at least, nothing but the opportunity cost of destroying the USDollar's reserve status. Putting that into dollar terms is, therefore, impractical at best and illogical at worst. We have a suspicion that the following cable from the US embassy in China is about to go not viral but very much global, and prompt all those mutual fund managers who are on the golden sidelines to dip a toe in the 24-karat pool." Strong words, but expect the information to go viral outside the United States and England, which have well controlled press network systems fully subservient to the power elite and security agencies. See the Before It's News article (CLICK HERE).

◄$$$ GENERAL MOTORS HAS A PENSION FUND SHORTFALL GREATER THAN ITS MARKET CAP. ITS EXECUTIVES MUST SELL STOCK TO FUND THE SHORTFALL, WHICH WILL BE DILUTIVE. LIKE MANY PENSION FUNDS, THEY CALCULATE FUTURE RETURNS FAR ABOVE THE PREVAILING ROCK BOTTOM BOND YIELDS. SO THEIR CONDITION IS WORSE THAN STATED. $$$

The quintessential strength of an economy lies in its transportation and steel industries. The USEconomy has neither, both outsourced and gutted. The General Motors pension fund shortfall could be bigger than its entire corporate market capitalization value. Bloomberg has disclosed that General Motors expects to quantify a $35 billion pension shortfall. The condition will surely delay share buyback or dividend payments. The shortfall trumps the GM marketcap, and makes a mockery of the supposed success nationalization full loop. The marketcap fell to $33.1 billion last month, but has recovered to $34.7 billion last week. The carmaker has emerged from bankruptcy, reported six consecutive quarterly profits, and built up its cash holdings. Rumors float that the company might buy back shares from the USDept Treasury. Disclosure of the pension shortfall will interrupt any return to normalcy. Instead look for pension funding at a great cost, like a dilutive secondary stock offering. The shortfall has grown. It was reported at $22.2 billion at the end of 2010. The figures did not include a $2.2 billion stock contribution made to the pension fund in January. By contractual obligations, GM is not required to make contributions to its US pension plans until 2015. Ambitious goals on its funding have been publicly proclaimed, but they are impractical and highly unlikely. The story is worse than reported. Like many corporate pension funds, the calculations on future returns are totally bogus. Reality dictates using lower asset returns. Like fools, GM used a discount rate of 4.96% last year to calculate current value for future payments, which is clearly absurd but looks good on paper. See the Business Insider article (CLICK HERE).

USTREASURY BOND TRAVESTY

◄$$$ BERNANKE LAID AN EGG AT JACKSON HOLE. ON A GLOBAL STAGE, HE ESSENTIALLY ADMITTED THE USFED HAS NO EFFECTIVE WORKING TOOLS REMAINING. THEY HAVE EXHAUSTED THEIR TOOLBAG, MADE THE SITUATION WORSE, AND NOW HOPE FOR THE BEST LIKE ALCOHOLIC PYROMANIACS. HE DID SIGNIFICANT PUBLIC HAND WAVING AND HAND WRINGING. IF HE IS AWARE OF THE DIRE RISK OF SYTEMIC BREAKDOWN, HE DID NOT SHOW IT. HIS ARROGANCE SURELY LEADS HIM TO BELIEVE OMNIPOTENCE. MUCH REVERENCE IS STILL SHOWN TO THE USFED & CHAIRMAN DESPITE THEIR FAR-REACHING FAILURE. $$$

Never in modern history has a central bank from a major industrialized nation admitted helplessness and futility in monetary policy capability until late August when USFed Chairman Bernanke did so in full view on stage. He might as well have admitted that the fiat currency system and its attendant central bank franchise have been a gross failure. Systemic failure is next, a process well along. In a pathetic display that lacked any details whatsoever, Bernanke delivered a grand bluff, claiming at the Jackson Hole Meeting of bankers and economists that the USFed still has tools to stimulate the USEconomy. He has leggo and tinkertoy tools, some Beanie Babies, bailing wire and duct tape, nothing more, maybe some strong language. To think that the USFed can halt interest paid on Excess Reserves is laughable, since the central bank needs the assets to conceal its grotesque insolvency. The ZIRP (0% rate) and QE (debt monetization) have been tried, with no economic recovery at all and a cost increase to aggravate the situation.

Before an admiring crowd, shamelessly Bernanke said "In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus. Although important problems certainly exist, the growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years. It may take some time, but we can reasonably expect to see a return to growth rates and employment levels consistent with those underlying fundamentals. The Federal Reserve will certainly do all that it can to help restore high rates of growth and employment in a context of price stability. [He called for the USCongress to adopt a] credible plan for reducing future deficits over the longer term. The extraordinarily high level of long-term unemployment adds urgency to the need to boost job growth. Most of the economic policies that support robust economic growth in the long run are outside the province of the central bank. Financial stress has been and continues to be a significant drag on growth. Given the most likely scenarios for resource utilization and inflation in the medium term, the target for the federal funds rate would be held at its current low levels for at least two more years."

The denial by Bernanke was dressed up within a fantasy perspective that fails to detect a recession, again. He cannot address the bank insolvency either. Never has the USFed neglected from offering details on tools to use. What a bluff!! He essentially raised a white flag of defeat and punted to the USCongress, a den of polarized compromised nitwits and snakes. A second day has been added to the next FOMC meeting in late September to allow a fuller discussion of the economy and potential response. He fell short of promising a QE3, acting coy. My belief is that debt monetization that is QE has never stopped, and has actually accelerated, with more global participation by other almost equally desperate central bankers.

In a grand concession, and veiled billboard of defeat, Bernanke pledged for the first time to keep its benchmark interest rate at a record low at least through mid-2013. No central banker in history has ever made such a promise. He put blame on the housing market as interrupting the natural recovery process, without realizing that the fostered dependence upon home equity withdrawals and mortgage bond trading was the twin stake through the USEconomy's heart that the USFed endorsed. He called it a former significant driver of growth, without acknowledging a deadly dependence that has resulted in systemic failure. A housing and mortgage bubble cannot substitute for industry, even if risk is offloaded in a shadowy system with full praise and blessing. He made general brush stroke comments about the European sovereign debt crisis, the volatility of financial markets, and the frustrating developments related to the USGovt fiscal situation. This chairman is as much an embarrassment to economists as he is a willing harlot servant to the bankers. The nation awaits his helicopter drops, but so far only gigantic shipments have come to the loyal big banks, via dump trucks in the US and shipping containers overseas. See the Yahoo Finance article (CLICK HERE).

◄$$$ INTEREST RATES HAVE PUSHED LOW IN THE UNITED STATES. THE NEXT STEP FOR THE USFED IS BECOMING CLEAR, THE TWIST. LOWER LONG-TERM RATES WILL ACCOMPLISH NOTHING. USFED POLICY WILL DO NOTHING TO FOSTER A REBOUND IN THE USECONOMY. THEY HAVE OTHER MOTIVES BASED UPON DESPERATION. STRONG POLICY TOOLS ARE EXHAUSTED. REMAINING OPTIONS ARE VERY LIMITED, MORE LIKE TWEAKS. THE USFED HAS SIGNALED IT CAN DO VERY LITTLE, YET THE FINANCIAL MARKETS SEEM TO BELIEVE IN AN UNLIMITED ARSENAL AND IN MIRACLES. THE USFED IS PLAYING GAMES WITH ITS BALANCE SHEET. THE US FEDERAL RESERVE IS SLOWLY BECOMING A TOXIC BAGHOLDER. $$$

Operation Twist is purported to save the day. It will accomplish nothing. Lower long-term bond yields will not help the USEconomy, only manage the collapse better. It suffers from widespread insolvency, as debts exceed assets. In fact, lower long-term yields actually act as a dampening effect from the ultra-low savings rates on savers, pensioners, and the giant pension funds. Aneta Markovska from Societe General Bank charted what the flawed duration extension will look like from the contorted twist exercise. Never lose sight that unless the 2vs10 USTreasury Yield Curve is steepened substantially, the banks are buried dead. They have relied upon a carry trade for three years that is fast vanishing. They borrow short and cheap, invest long and dear, then pocket the profit in a recapitalization exercise. Besides, very few people are taking on new mortgages regardless low rates, seen in weekly Mortgage Banker Assn data. Low mortgage rates only serve to prevent a sudden crash in housing prices, as in controlled demolition. It is an old adage, that to ensure the US banking system expires in death, the curve must completely flatten for game over. The end result will be yet another TARP to bail out the banks. The SocGen research expects that the USFed will dump $420 billion worth of USTreasurys in the range of 1.5 to 4 year maturity, and use them to purchase bonds with a maturity longer than 4 years.

SocGen wrote, "The next step from the Fed will almost certainly be for more easing and it will almost certainly be duration extension. The only question is September or November? Prior to the August employment report, the market was split 50/50 on the timing of the announcement. The report pushed the odds in favor of September, which is our central scenario. We estimate that at the upper limit, the extension could amount to as much as $420 billion in duration purchases, which would make it comparable in size to QE2. However, the Fed may not announce the full amount up front, but instead give a monthly run rate and re-evaluate at each meeting. Matching the previous run rate, we would expect the Fed to do roughly $55 billion per month. This could take the Fed as far as April 2012, at which point inflation should have receded enough to put QE3 back on the table."

Execution of the Twist will take place over the course of several months. The USFed is likely to indicate a monthly run rate to be re-evaluated at each monthly meeting, rather than to divulge a total volume affected. The USFed invited a nasty backfire with too much transparency for QE2. Under QE2, the embattled central bank increased their holding by $75 billion per month, of which $55 billion was allocated to the long end of the curve beyond 4 years maturity. If repeated, the same monthly run rate and executed assumption of liquidating all assets in the 1.5 to 4 year bucket, the Operation Twist (aka QE2.5) could stretch over 7 or 8 months. If announced in September, it would last through the end of April. The benefit to banks is minimal, and to the USEconomy nothing at all. The $55 billion in POMO recycling will permit the banks to flip assets to greater fools, no shortage there. The practical effect will be to induce safe haven pursuit such as Gold and to a lesser extent crude oil. See the Zero Hedge article (CLICK HERE). My firm belief is that Operation Twist is a diversion story from the reality of continued QE2 that never stopped, even amplified.

The actual consequences, hardly systemic benefits, are two-fold. Interest rates pushed to low levels 1) keep USGovt borrowing costs down during a time of exacerbated exploding deficits that must be financed and rolled over, and 2) enable the USFed to show a minor profit on portions of their ruined balance sheet, as mortgage bonds mature for cash and USTreasurys rise in principal value. To be sure, the banking system is approaching a bank holiday in the United States and Europe, perhaps simultaneously. The USFed is fine tuning its wreckage, sorting out portions of its swill of toxic paper, which some call correctly rearranging chairs on the USS Titanic deck. Soon the USGovt will have to claim the entire toxic gaggle on its balance sheet. The USGovt is a willing repository for vast toxic paper. Take for instance the Maiden Lane portfolio, a toxic tranche processed. JPMorgan CEO Jamie Dimon signed off on hiring BlackRock for no justifiable reason except to dispatch the toxic portfolio and avert a $1.1 billion loss. Odds favor that BlackRock came to the rescue by processing it through the New York Fed directly as QE1 was underway. The QE programs feature sponsored dumping processes. See the Implode Explode article (CLICK HERE). Ride to conclusion, a new corner, marked by 1.5% long-term USTreasurys, an end to the carry trade, no upside on bond investment, a contradiction against rising prices, and a global invitation to prick the bubble, with leakage sending the Gold price to $5000.

◄$$$ THE USFED HAS CONTINUED TO MONETIZE USTREASURY BONDS. THEY NEVER STOPPED. THE CENTRAL BANK IS THE PRIMARY IMPETUS BEHIND THE USTBOND RALLY. WHEN THE USFED SAID "NO MORE QE" PUBLICLY, THEY MEANT ACCELERATED DEBT MONETIZATION BUT IN SECRECY. WITNESS STEALTH GLOBAL QE. THE RISKS TO A RUN ON THE USDOLLAR ARE TOO GREAT TO BE TRANSPARENT ABOUT POLICY. A HIGHER GLOBAL COST STRUCTURE IS NOT DESIRED. IT WILL COME ANYWAY ON THE NEXT STIMULUS TO THE USECONOMY AND TARP PROGRAM FOR THE BANKS. THE FLAT USTREASURY YIELD CURVE, WHEN ACCOMPANIED BY A LARGE TRADE DEFICIT AND FISCAL DEFICIT, SIGNALS SYSTEMIC FAILURE. $$$

As steadily mentioned in the Hat Trick Letter, the USFed is full of grand deception, their public statements bold lies. Behold the enormous infusions of fresh phony money into the system from the top, like a one-meter diameter water main. This is a smoking gun of still vast central bank activity. The USFed has been heavy buyers of USTreasurys, flooding money into the system. They have a purpose, to force the flat Treasury curve, where the long yields have gone under 2%. Those who do not believe that QE is a constant fixture are badly mistaken. The Jackass analysis has warned that Quantitative Easing would be secretive and not stop, even turned global with other central bank participation. Notice the evidence.

Notice the complete flattening of the USTreasury Yield Curve. It cannot signal an economic recession since the short end is practically zero. What the curve below does signal is a liquidity trap, economic deterioration, bond market bubble pathogenesis, capital destruction, and systemic failure. Observe the same trap that the Japanese found themselves stuck in for over a decade. They endured like in a protective cocoon of time, since they had industry and trade surpluses. The United States has neither in critical degree. Be sure to know that such charts and identified patterns are not to be found in modern Keynesian textbooks. They are useless.

 

◄$$$ USGOVT HAS ALREADY SURPASSED THE NEW DEBT LIMIT IN AN OUTRAGEOUS FLOW OF RED INK. IN JUST ONE MONTH FROM THE DEBT LIMIT EXTENSION, IT HAS BEEN BREACHED, AND ILLEGALLY SO. THE DEBT DOWNGRADE WAS DISMISSED AS FRIVOLOUS AND IRRELEVANT, BUT THE VIOLATION IS ON THE TABLE FOR ALL TO SEE. THE NEW IMPERATIVE OF ECONOMIC STIMULUS AND LABOR MARKET AID WILL DICTATE A DEBT LIMIT $2 TRILLION WITH ALARM, AS AUSTERITY WILL BE DISCARDED. $$$

The Credit Default Swaps rates for the USGovt debt deserve a much higher value. The debt limit put in place on August 2nd has already been breached. The cumulative debt has gone past $14.692 trillion. This is Deja Vu again, a travesty, a flaunt of the system, but with no attention paid during this round. Just over five weeks ago, with pomp and pageantry, in the theater of crisis, against a backdrop of debt downgrade by Standard & Poors, the official debt ceiling was raised from $14.294 trillion to an intermediate ceiling of $14.694 trillion, or $400 billion more. As of September 2nd, less than a month since the expansion, total US debt was at $14.697 trillion. Nobody cares. The US press has been silent, since after all an impressive USTreasury Bond rally is in progress, one that purportedly contradicts the S&P downgrade. All this happened when Moodys and Fitch repeated their justification for AAA ratings, and Warren Buffet his AAAA rating. Refer to the Table III-C (Debt Subject to Limit). See the Zero Hedge article (CLICK HERE).

This breach occurred while the USCongress was on vacation in August. None of the conditions for the agreed upon increase have been addressed. Bear in mind that the mindset of budget austerity that permeated WashingtonDC in July has disappeared. Expedience of crisis during the great economic slide has taken over. The US nation heading into recession pushed a higher priority with its higher moral ground. The $447 billion Obama Stimulus Bill, or whatever it is called, a Jobs Bill, a Tax Bill, a Rescue Bandaid Bill, a Tourniquet Bill, will motivate the USCongress to agree to a debt limit that will surpass $2 trillion. Be sure to know that no economic plan is within this economic plan, mostly panhandles this round and parasites next round. The bill manages the wreckage, and guides the rapid decay process, laying Uncle Sam on the ground gently. This will give wiggle room. See the VOA article (CLICK HERE).

BEYOND TIPPING POINT

◄$$$ ERIC JANSZEN CLAIMS THE UNITED STATES HAS RUN OUT OF TIME, AFTER TAKING WRONG PATHS IN THE WRONG DIRECTION, AS CRITICAL OPPORTUNITIES HAVE RESULTED IN GRAND WASTED EFFORTS AND A COLOSSAL SUM OF SQUANDERED MONEY. THE URGENCY WAS IGNORED. DENIAL OF INSOLVENCY, BANKER LARGESSE, PITHY STIMULUS, AVOIDED REFORM, DARING DEBT MONETIZATION, ABSENT AID TO HOMEOWNERS, IGNORED IMBALANCES, ATTACK OF FOREIGN CREDITORS, PERMITTED BOND FRAUD, DUMB PROGRAMS, WASTED EFFORTS, ALL INITIATIVES HAVE BEEN DREADFULLY FAR OFF TARGET. THE DOCTRINES EMPLOYED ARE FALLACIOUS AND DESTRUCTIVE TO CAPITAL ITSELF. THE SYSTEM CANNOT BE BROUGHT BACK. THE LIMITED OPPORTUNITY (IF IT EXISTED) IS LOST. A RECESSION TIPS IT TOWARD FAILURE. $$$

Eric Jantzen is an insightful excellent analyst, and has provided adept chronicles for the entire disaster than began several years ago. He wrote, "I warned in my 2010 book The Post-Catastrophe Economy: Rebuilding America and Avoiding the Next Bubble that the US was in a race against time to get its economic house in order. The window of opportunity to get the economy back on a strong growth track was approximately two years starting in the second quarter of 2009. By the time my book came out in the fall of 2010, I was warning in book tour interviews that recovery policies were taking us in the wrong direction, that attempts to restart the FIRE Economy (the economy oriented around the finance, insurance, and real estate industries) will fail at the expense of the Productive Economy (the economy of goods and services produces that employs over 90% of consumers). If policy makers persist with this wrong-headed approach, I warned, the result will be persistent high unemployment, a depreciating dollar, rising consumer price inflation, falling home prices, and rising budget deficits. Congress did not understand the urgency of the mission to restructure the economy toward productive activity and away from finance-based activities, if they understood that as the mission at all. They argued and experimented, as if we had all the time in the world to exhaust all other options before doing the right thing. Now, as 3Q2011 winds down and we head into the fall, it is apparent that our two-year deadline has come and gone, and the stock market knows it." Jantzen does not mention criminal activity and syndicate behavior, which serve to compound the wrong turns and missed window of opportunity.

Time is up. The crisis has blossomed. Too late to do anything that will matter. Nothing was even attempted at reform. In true Nazi style, the entire cupboard was ransacked in a grotesque episode of Fascist Business. The bankers took 99% of all the official aid and left crumbs for the people. The USEconomy is turning toward recognized recession. Capital has been destroyed in a climax, as costs will rise further. The USTreasury Bond market is crowding out credit creation. The USFed toolset is depleted. Businesses suffer from higher cost without pricing power. Jobs are not being created. The US leaders from all corners do not comprehend capitalism anymore. The panic phase has begun. The people are realizing that a solution is not coming, as they placed trust in a broken USFed, never having trusted the USCongress. Acceptance of the wars aggravated the path to ruin for an unwitting nation. The USGovt deficits will accelerate toward $2 trillion, sufficient to sound alarms across the land. In one year, the catastrophe will be better recognized, maybe sooner. The US stock market has begun to echo the perceived rising panic from the early stages of a systemic failure comprehension. The wrong pathways could be identified as queer manifestations of the popular Panhandle Doctrine for consumers and the Parasite Doctrine for bankers, which persist in wrecking the USEconomy and financial sector. The system has endured rampant capital destruction from ruinous policy in a manner the leading economists fail to detect. No recognition has yet come that the United States must reclaim its industry sent to Asia, the heart & soul of any economy, surely not by economists beholden to the finance sector. Witness the increasing alarm about a broken system, with opportunity lost at every conceivable decision. See the Jackass article entitled "Panic & Anxiety Swirl in a Storm" on Gold-Eagle (CLICK HERE).

◄$$$ THE UNITED STATES IS FOLLOWING THE DEAD-END PATH OF THE JAPANESE, WHOSE SIGNPOSTS ARE ZIRP AND QE. UNFORTUNATELY, THE US-SYSTEM RUNS THE SAME RISKS BUT WITHOUT SIMILAR ADVANTAGES. LACK OF INDUSTRY AND ABSENT TRADE SURPLUSES WILL EXPOSE AMERICAN INSOLVENCY WHILE DEFICITS EXPLODE, AS FOREIGN CREDITORS PULL THE PLUG. THE UNITED STATES FACES SYSTEMIC FAILURE, PRECISELY AS FORECASTED BY THE JACKASS IN 2008 AND 2009. $$$

Societe Generale, the big French bank, has been in the news lately. If not for their exposure to Southern Europe sovereign debt, it is for their good research. They recently published a report that warned about the Japanese Scenario, how it should instill fear in America to the core. The United States has already entered a liquidity trap and stuck corner of 0%, from which it cannot emerge. SocGen points to a three-stage crisis, of asset bubble creation, then the great bust, followed by a condition unresponsive to stimulus of any kind as long-term interest rates fall lower and lower. SocGen warns of a Lost Decade, but they under-state the peril. The actual risk to the United States is of systemic failure. It will be apparent soon.

The SocGen research concluded, "Be afraid, be very afraid. If we accept the idea of a three stage crisis (taking as our starting points 2000/01 + 2007/08 + 2011), we have probably reached a situation similar to Japan's lost decade of the 1990s. A Japanese-style scenario for the US could gain traction, particularly if there is no real estate recovery in the US, high unemployment levels persist, and economic sentiment remains depressed. Such a configuration would suggest that, in June 2011, we exit a bear market rally, which was fueled by restocking and QE2. Another 20% drop in the equity indices could then be observed in the coming months if this scenario were to materialize. The US debt trajectory through 2016 is very worrying, and explains the recent US rating downgrade from S&P from AAA to AA+. The US debt bears little resemblance to the structure of German debt or even EuroZone debt, even after the agreement reached in the US between Democrats and Republicans. Hence, we can affirm that the European crisis is linked directly to the lack of a united front among European leaders rather than the debt situation itself as a whole. With progress (although laborios) being made on austerity plans, rates will probably remain very low for an exceptionally long period of time." See the Zero Hedge article (CLICK HERE). Note that each path has its own starting point, the chart being in days from that original date.

US interest rates will not stay low because they should, but rather because they must, even if doing so perpetuates and exacerbates the distortions caused by improperly priced money. The Japanese had industry to offset falling property and stock values. The Japanese had trade surpluses from a vibrant industry. The Japanese, due to extremely low bond yields, never attracted foreign creditors for debt security investments. To be sure, they had to coerce postal pension and government pension funds to purchase the inflated JapGovtBonds at low yields. The United States has none of the above advantages, and therefore will fall into systemic failure, dragged down by widespread insolvency, inadequate income, exploding deficits, and foreign abandonment. The latter risk will be managed by a fostered dependence upon debt monetization and extreme isolation, with a foreign reaction to kill the USDollar like a cancer. The comparison of the US to Japan serves in my opinion as a great blind spot by American economists and bankers. They arrogantly believe that with a more developed finance industry, the US is superior and impervious to ruin. They arrogantly believe perhaps that with a more powerful military, the US is impregnable. They arrogantly believe that US$-based assets will forever be attractive to foreign investors, sufficient to offset the ignored, dismissed, and dispatched industrial base of factories. They are wrong on all counts.

Never have American economists and their banker dog trainers been more errant in dogma, beliefs, policies, and practice. The USEconomy is a working laboratory of capital destruction and dependence upon inflation. The US compares extremely unfavorably to Japan, the similarities clear, but the differences stark and deadly. Grandstand speeches, eloquence, adulation, and well coiffed bank executives sporting tailored suits matter not at all in this game. The US believes that its financial predominance can overcome its lack of industrial critical mass, but incorrectly so. The financial sector continues to destroy capital within the USEconomy, as falsely price money and rising costs conspire to render capital inactive, idle, and wasted. US Plant & Equipment rot on the capitalist vine. Its financial instruments act as the mortal enemy of a productive economy. See mortgage bonds, home equity removal, credit derivatives, and fraudulent bond arenas for starters. Tragically, the higher wages forced three decades ago within the USEconomy by a skein of war costs set the nation on a path that led to globalization, a game America loses. US labor is priced out of the global market, and USGovt taxes and regulations deliver the death blow. Witness the death of a nation, where the best that can be hoped for is a restructure into six regional territories, managed by receivership tribunals.

◄$$$ GOLDMAN SACHS EXPECTS A BROAD FINANCIAL COLLAPSE. THEY CITE THE INANE ILLOGICAL TREATMENT OF AN EXCESSIVE DEBT BURDEN WITH EVERMORE DEBT. THEY CITE THE US-BANKS AND EURO-BANKS BEING ON THE VERGE OF COLLAPSE. THE INTREPID GSAX RECOMMENDS BETS THAT THE EURO CURRENCY WILL FALL AND CREDIT DEFAULT SWAPS ON BIG BANKS WILL PAY OFF HANDSOMELY. $$$

Goldman Sachs is the epitome of a criminal organization in finance, a predatory outfit of extreme expertise. It is reported that to obtain vice president status, the resume must contain a criminal fraud deed committed successfully. Their public statements go opposite to their corporate trades. They engage in multi-$billion bond sales programs while betting the other side in gross misrepresentation activity, a felony. They work predatory schemes in government bond sales that misrepresent status. Before the financial crisis of 2008, Goldman Sachs packaged mortgage backed securities known to be garbage, and marketed them to investors as AAA-rated investments. They attack clients, target positions, yank credit, and force liquidations. They are a great vampire squid. They are at it again. Goldman recently has been busy telling the public that all is well, but meanwhile they are advising their most connected and affluent clients to bet on a huge financial collapse. On August 16th, a 54-page report authored by Goldman strategist Alan Brazil was distributed to institutional clients, not intended to be seen by the unwashed public. Fortunately, a Wall Street Journal columnist obtained access and distributed it surreptitiously. GSax must contend with many enemies, having built a history of deceit and pillage.

Goldman Sachs apparently believes that an economic collapse is coming. They have a strategy to exploit the opportunity. Brazil mentions that the sovereign debt problem in the United States and Europe will erupt, and numerous European banks on the verge of collapse. He accuses the US bank leaders of attempting recklessly to solve debt problems with more debt. High anxiety has hit the global financial community, where many are poised to hit the panic button, a grand breakdown expected to follow. The big Western banks cannot admit how bad conditions are publicly, the insolvency spreading like cancer, but privately they are freaking out. According to the Wall Street Journal, analyst Brazil believes that "as much as $1 trillion in capital may be needed to shore up European banks, that small businesses in the United States, a past driver of job production, are still languishing, and that China's growth may not be sustainable." That is a broad stroke touching on three continents. Bear in mind that this comes from a top Goldman Sachs analyst, who must be bristling with anger on the exposure.

Brazil describes the debt crisis of the United States and Europe. He wrote, "Solving a debt problem with more debt has not solved the underlying problem. In the United States, Treasury debt growth financed the US consumer but has not had enough of an impact on job growth. Can the US continue to depreciate the world's base currency?" He must see the futility of QE programs that have raised the entire cost structure from USDollar debasement. This report is intended for institutional investors with oversized accounts. He covers the financial crisis in Europe. Brazil writes about how the Euro is headed for the rocks and numerous financial institutions in Europe could be headed for collapse. As always, GSax sees an opportunity to exploit the situation for profit. The Business Insider summarized the investment guideline that Brazil gave in the report regarding the impending collapse in Europe.

  • Buy a 6-month put option on the Euro currency versus the Swiss Franc, thus betting the Euro will drop against the SWFranc. Speculators would have done well to wait for the SWFranc to fall those 700 to 900 basis points last week. Hence many GSax clients might have been burned badly immediately.
  • Buy a 5-year Credit Default Swap on an index of European corporate debt, called the iTraxx 9. This is a bet that some big corporations will default, probably banks. The CDSwap is a debt insurance policy, designed to pay off upon bond failure.

Goldman Sachs is not vulnerable to many consequences. It must deliver on lawsuit awards and heavy fines, but they are small compared to the profits, the proverbial minor cost of doing (fraudulent) business. They receive slaps on the wrist, but basically operate with broad impunity. The reality is that the top levels of the USGovt are littered with people with GSax pedigree, by design. This is part & parcel of the coup d'etat started by Robert Rubin and consummated by the 911 attacks, a full scale takeover of the USGovt. Only dopes and dupes believe the official story. Most Europeans are well aware, while the American crowd is at least half asleep. Goldman is among the sacred insider banks deemed as Too Big To Fail, the label which should be regarded as a criminal green card, toward the highest level of membership in the Fascist Business Regime. Despite being insolvent, despite being the primary narcotics money laundering institutions, at this point, the Big Six banks (Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo) possess assets equivalent to approximately 60% of entire USEconomy gross national product. Furthermore, Goldman Sachs was the second biggest donor to Obama's campaign in 2008. That explains the GSax appointment of Geithner as Treasury Secy and numerous regulator posts being filled by GSax insiders. Expect nothing on investigations or prosecutions, but private lawsuits have grown into a veritable parade. So far Bank of America is the prime target.

◄$$$ GSAX POINTS TO THREE INDICATORS OF QE3. THEY ARE EACH ACTS OF DESPERATION. A HIGH PITCH INTERNAL BATTLE IS GOING ON BETWEEN BERNANKE AND THE GOLDMAN SACHS TEAM IN THE CONTROL ROOM. THE GSAX TEAM WANTS MORE DEBT MONETIZATION AND BROADER ASSET SUPPORT LIKE WITH MORTGAGE BONDS AND EVEN STOCK INDEXES. LOOK FOR A POSSIBLE NEW ADOPTED USFED MANDATE TIED TO ECONOMIC GROWTH IN G.D.P. TERMS. THIS IS ALL OFF THE MARK AND TOO LITTLE TOO LATE. $$$

USFed Chairman Bernanke is at risk professionally, for his opposition to Goldman Sachs. The venerable syndicate monolith is not accustomed to being snubbed on its policy recommendations, done in a highly visible display at the Jackson Hole conference. GSax had called for QE3 to kick in immediately and urgently so. But Bernanke only left the QE3 door open, not enough to satisfy the GSax superiors at the New York Fed. The next battle, loaded with counter-attack by the fortress stronghold against the upstart chairman, is expected at the next Federal Open Market Committee meeting on September 20 and 21. The USFed risks incurring the wrath of Goldman at its own peril. To date, the measures such as Operation Twist (using maturing short-term bonds to purchase long-term USTBonds) have begun but will be proven as ineffective. At least they have not been harmful, like causing a big US$ decline in the exchange rate, and consequent cost structure escalation that assures a dangerous economic recession. Watch for unusual pressure points exerted against Bernanke, such as his personal background.

GSax painted a backdrop to justify its policy calls. They describe the USEconomy as stagnant, the unemployment conditions likely to worsen. They assess the inflation risk as low, due to excess capacity, that old tired nonsensical plank that ignores price risk from a currency decline. They regard the benefit of further QE debt monetization as greater than the risks involved. So far the Bernanke plan is for shifts in their balance sheet (like O.Twist, a sincere reference to the Dickens young conman character) and a cut in the interest rate offered to Excess Reserves, that fable of carry trade proceeds locked at the USFed. Goldman Sachs recommended three urgent radical actions within a new QE3 program of initiatives. They are all desperate measures, best described as additional destructive actions. These measures are worse than too little and too late, since they will make matters worse, but beneficial to Wall Street firms. In fact, if instituted, such policies could invite extreme counter-attacks to the USDollar, and open ignition systems on the Gold & Silver price. Lately the USDollar has been buffeted nicely by the ruinous Euro. However, both have been circle the toilet in a corresponding downward flush in the monetary men's room. See the Zero Hedge article (CLICK HERE).

1)      An extension of the QE program into markets other than USTreasurys and USAgency Mortgage Bonds, as in private sector securities such as stocks & bonds. The Federal Reserve Act forbids such activity, requires funding from the USCongress, and if done would be done secretly. The object of support would be non-conforming mortgages, corporate bonds, stock indexes, even baskets of real estate. If done, the USFed could be isolated as a rogue central bank with USDollar implications.

2)      A much bigger QE program, up to the extreme version of a promise to buy as many securities as needed to hit a specific yield target. Think a rate cap on long-term USTBonds, or a stock index floor. These are concepts once suggested by Governor Bernanke back in 2002 when on the USFed Board. This would involve a sizable expansion in the USFed balance sheet. The internal tension might be a problem, as the tail risk would require buying up the entire supply of securities in the targeted sector to make good on their promise. They could lose control of certain markets. If done, a deep dependence on the USFed could be revealed.

3)      An explicit or implicit change in the USFed policy targets. The inflation and employment mandates could be joined by an economic growth (GDP) mandate in the form of targets. The basic GDP target could circumvent criticism of inflation versus deflation overshoots, and would enable the USFed to formally claim that improperly measured inflation is growth. That has been a Jackass warning for a full year. A move to a nominal GDP target is tantamount to a temporary increase in the inflation target. Perhaps do not expect item #3 to come to pass, since failure would be immediate during a recognized recession.

◄$$$ USFED DISSENSION HAS NEVER BEEN GREATER. GOVERNOR EVANS OPENLY ADVOCATES A QE3 PROGRAM. HE EXPLAINED ITS MERITS AND SUCCESS, A STRAINED ARGUMENT. THE NEXT HINT OF QE WILL LIGHT A SMALL FIRE UNDER GOLD. THE DEBT REPURCHASE WITH MATURING ASSETS IS THE CONSENSUS ALTERNATIVE, BUT IT WILL ACHIEVE NOTHING EXCEPT TO PROVIDE MORE BANK AID. $$$

Chicago Fed President Charles Evans in late August advocated a strong central bank accommodation for a substantial period of time, as the USEconomy slides sideways. A member with voting rights, Evans has been a principal policy dove at the policy setting Federal Open Market Committee this year. He expressed favor for the most aggressive policy actions under consideration to boost the recovery process. He openly urged the USFed to clarify its policy intentions in order to obtain better results. He indirectly labeled the current situation as a recession. "It is difficult to characterize the labor market as anything other than consistent with being in a recession. The economy is really going sideways more than anything else. I am in favor of some of the most aggressive policy actions of anyone on the committee. Strong accommodation needs to be in place for a substantial period of time. I think we would have been so much worse off if we had not had the accommodation that is been in place," Evans urged the USFed to set targets that would clarify its policy intentions, such as suggesting that interest rates could remain low as long as medium term inflation remained below 3% and until employment falls to acceptable levels. Given the domestic and international opposition to Quantitative Easing, in continuation of the $2.3 trillion in USTBond and assorted mortgage bonds to help the economy, the likelihood of a formally announced QE3 is not high. However, expect QE and its corrosive debt monetization to continue below the surface in heavy volume, no longer easily visible. The clear consensus is for the weak-kneed alternative of reinvestment of maturing USFed assets into long-term bond purchases. That will accomplish nothing, but offer the appearance of doing something. See the Reuters article (CLICK HERE).

DEAD BANKS OF AMERICA

◄$$$ THE USGOVT FILED LAWSUIT AGAINST 17 US-BANKS IN A BIZARRE TURN OF EVENTS. THE CAPTURED CONTROLLED FORT, COMPLETE WITH OVERSIZED CESSPOOL, HAS TURNED TO ATTACK ITS MASTERS IN THE TOWER CONTROL ROOM. ACTUALLY THE FANNIE MAE PARENT ORGANIZATION FILED THE LAWSUIT OVER MISREPRESENTATION. WITNESS REVENGE AND DIVISION FROM INSIDE THE FORTRESS. FINALLY THE CULPABLE BIG BANKS ARE UNDER FIRE FROM BROAD-BASED ATTACKS. $$$

In somewhat a shocker, the USGovt has files lawsuits against 17 big banks and mortgage firms, five of which are foreign. Fannie overseers seek $105 billion in damages from lenders tied to fraudulent mortgage bonds in its possession. The Obama Admin created a new federal agency to clean up the real estate and financial crises, the Federal Housing Finance Agency (FHFA). Its most meaningful deed is the lawsuit, alleging fraud and misrepresentations over mortgage backed securities they sold to Fannie Mae and Freddie Mac. The agency alleges that Countrywide Mortgage (now under Bank of America stewardship) sold securities to Fannie & Freddie that "contained materially false or misleading statements and omissions, and falsely represented that the underlying mortgage loans complied with certain underwriting guidelines and standards, including representations that significantly overstated the ability of the borrowers to repay their mortgage loans. The mortgages had different and more risky characteristics than the descriptions contained in the marketing and sales materials provided to the enterprises for those securities." The Fannie overseers implicitly admit to buying bonds blindly in a mass production process. Lawsuits have been filed against the following firms in alphabetical order (** signifies foreign):

Ally Financial (GMAC)

Deutsche Bank **

Merrill Lynch (Franklin)

Bank of America

First Horizon

Morgan Stanley

Barclays

General Electric

Nomura **

Citigroup

Goldman Sachs

Royal Bank of Scotland **

Countrywide

HSBC North America

Societe Generale **

Credit Suisse **

JPMorgan Chase

 

Implicit is the understood ignorance, naivete, or reckless abandon by F&F themselves, too busy to check on what they were purchasing, in service to the nation and its latest asset bubble pursuit. The unprecedented government lawsuits against the financial institutions alleged violations of federal securities laws and common law in the sale of residential private label mortgage backed securities. The suits are seeking damages and civil penalties under the 1933 Securities Act similar to a suit filed earlier this summer against UBS Americas bank. Each complaint cites damages for negligent misrepresentations, and some of cite state securities statute violations or fraud. The FHFA agency acts as official conservator of Fannie Mae and Freddie Mac, responsible for preserving their assets, a management role over the cesspool. A dangerous rift has formed, since F&F act as clearinghouse for several $trillion fraud schemes. Hidden leverage is either at work or implied. The complaints were filed in New York and Connecticut courts on September 1st. The lawsuits were filed under the authority of the Housing & Economic Recovery Act of 2008. See the Housing Predictor article (CLICK HERE).

◄$$$ BANK OF AMERICA IS DEAD. ITS INSOLVENCY IS REVEALED EVEN IN THE VISIBLE REALM. IT HAS BEEN WALKING LIKE A ZOMBIE FOR THREE YEARS. FINALLY IT IS READY TO KEEL OVER. THE TIPPING POINT IS SALE OF ITS VIABLE ASSETS, LEAVING THE ROTTEN RANCID FETID CORE TO REMAIN, A WEAK TREE STANDING BEFORE A STORM. THE PRESSURED NEED FOR YET ANOTHER T.A.R.P. FUND RESCUE FUND FOR THE BIG BANKS IS COMING INTO VIEW. IF THE USGOVT CANNOT PERFORM THE TASK, THE USFED MUST DO IT. $$$

Even compromised bank analysts can see the obvious, that the US banking system has come full circle since 2008. It is in big trouble again. The banking system is at high risk of seizure. Nothing has been fixed. Housing prices continue down, including commercial properties. Bank balance sheets suffer from a new rotten element in accumulating REO homes seized in foreclosures. So the external seizures (foreclosures) ironically have transformed into internal seizures that include absent inter-bank lending due to intense distrust within the industry. Bank of America is on the verge of failure, dealing with a dire cash shortage, its insolvency becoming visible. A bank run by depositors could seal its fate with the liquidator. The big US bank serves as a great symbol of the banking industry, since BOA is involved in every type of bank operation across the nation. The rumor mill has that JPMorgan may be circling around BOA like a vulture looking for an angle to the meat. Leaked news from consulting service firms working on the BOA carcass report that internally the big bank has slashed expenses and procurement budgets to the bone. The non-core businesses are being auctioned off to raise urgently needed cash. They are selling the businesses that have a value bid in the market. Conversely, the majority of BOA core assets are commercial and residential mortgages, goodwill (extravagant sums paid on acquisitions), and other exotic toxic accounting kept off the balance sheet such as variable interest entities. The core contains only rot, a pruned tree missing its viable branches and fruit. Harken back to Enron days with such specialty rot. Hence, what remains in the BOA business is pure toxic waste. The big US bank is finally ready to drop dead. Not even narcotics money can keep it afloat. BOA has become a hollow tree facing a storm, without reinforced structure, only rot and putrid paper bark coverings.

Make a quick look at BOA financials. They have $2.2 trillion in assets. It reports an absurd $222 billion in book value, of which $80 billion comes under goodwill and intangibles. In other words nothing of any value. Henry Blodget asserted that the $80 billion is worthless. With the stroke of a pen, adjust the book value down to $140 billion. When confronted by the Blodget analysis, a BOA spokesman distracted attention from the topic at hand, and instead attacked the analyst's legal problems from the internet bubble era. Take their response as a off-handed confirmation of a correct analysis. BOA owns $139 billion is home equity loans, a troubled niche. Given the non-senior position of such loans, one can safely assume they are worthless. Bank analysts commonly regard home equity and second mortgages both to be total 100% losses. Nearly half of their remaining asset base is commercial & residential mortgage paper. BOA self-administered estimates on value probably involve an over-estimation of such assets by at least 15% to 20%. That is another $200 billion of impairment. By the time the dust clears on a rational realistic accounting analysis, Bank of America is technically insolvent even in the visible realm. The real rub comes from accounting off the balance sheet. The actual balance sheet value is at least negative $300 billion and probably 2x to 4x that amount, as in minus $1 trillion. BOA is the poster boy for the basement toxic swill beset by profound embedded fraud, corruption, and USGovt sponsored theft, at an order of magnitude worse than in 2008. The USEconomy has returned to recession mode in a gallop, which will compound the bank insolvency and topple the dead rotten trunk and limbs in full view.

In addition to a USFed secretive Quantitative Easing to prevent a string of USTreasury Bond auction failure events, the USGovt will be forced to do two things. It must provide a Stimulus Package, by whatever name it chooses, to buttress the USEconomy sliding rapidly into recession. The USGovt will also be forced into another TARP Fund to rescue the even more dead big US banks. If the USGovt does not rescue the banks with another $700 billion fund, then the USFed will be forced to save their brethren, their partners in crime, their syndicate associates. THE NEXT OVERSIZED FISCAL AND BANK BAILOUTS WILL JETTISON GOLD UPWARD IN PRICE, AS USDOLLAR DEBASEMENT WILL BE CRYSTAL CLEAR. Look for a half-baked plan for either the USDept Treasury or JPMorgan to assume responsibility for Bank of America. JPMorgan could use the opportunity to carve up BOA and digest some worthwhile assets. Doing what it does best, just like with the Bear Stearns resolution, JPMorgan will organize an official RELOAD with USGovt help. After Bear Stearns died, JPM lined up a ripe $138 billion to handle supposedly some private accounts that were taken in the assumption deal. They are adept at cherry picking, seen also with Washington Mutual carvings, with wretched refuse sent to Fannie Mae. The nationalized mortgage cesspool has effectively been abused as a conduit to monetize the massive mortgage housing debt bubbles that Greenspan adeptly blew, of course with effective risk offloaded. History will record the event as a 6am Saturday morning bankruptcy court session in Manhattan in the autumn of 2008. It was a pure JPM RELOAD for timely recapitalization, funds provided for market intervention, price fixing in the gold market, and USDollar stabilization efforts. See the Truth in Gold article (CLICK HERE). An experienced German banker with extensive North American business coverage made a terse pointed comment. He wrote, "Bank of America will collapse and take a couple of big US and European banks down with it, Deutsche Bank included."

◄$$$ GRAB A SEAT. BE READY FOR THE BIG US-BANKS TO EAT EACH OTHER IN A BATTLE FOR SURVIVAL. THE FIRST STEP WAS CONSOLIDATION AFTER THE 2008 LEHMAN PLANNED KILLJOB. NEXT IS COMPETITION DURING A DEADLY BATTLE AS THE COLLAPSE IS UNDERWAY. $$$

No evidence is offered. Just pure speculation. When facing pitched battle and deadly attack, syndicates usually turn on their own weaker partners. History is an accurate guide. Bank of America staggers on the plains as dead meat awaiting the swift birds of prey from overhead attacks. Its CEO is a weak player in Bryan Moynihan, whose net worth is 1% of his Wall Street cohorts, hardly brethren. Citigroup stands out for different reasons. Its client base in the retail business is being moved. Notice Jamie Dimon of JPMorgan griping like a little child about capital requirements, calling the Basel II rules blatantly anti-American. These are signals of imminent internal desperation and squabbles. The big US banks, having turned zombies in late 2008, are heading into stormy lands. The insolvency has caught up to them. Their balance sheets are growing worse negative. Their insolvency has become deeper, in recognized fashion. They must recapitalize. They face bond investor lawsuits and hostile mortgage payers. They are losing court cases. They have European bond exposure. They are locked out of European bond auctions. They are on the extreme defensive. In late 2008 and early 2009, they responded by attacking their own hedge fund clients and forcing a broad commodity market decline. This time they have far fewer response options. They will turn on each other as easy targets are identified and exploited. They will not consolidate so much as cannibalize.

◄$$$ BANK OF AMERICA IS DESPERATELY RAISING FUNDS. THE ASTUTE EYE CAN SEE BLATANT PLOYS TO LIFT THE STOCK SO THE BIG BROKEN BANK CAN SELL STOCK IN A RECAPITALIZATION MANEUVER. IRONICALLY, THE REMAINING PIECES TO THE B.O.A. BUSINESS ARE IN RUINS. SO STOCK ISSUANCE WILL BE DIFFICULT. $$$

Warren Buffet invested $5 billion of Berkshire Hathaway funds in the dead tree Bank of America. The deal includes warrants at the $7 share level that already are spurious. Numerous analysts have come out in opposition to the Buffet purchase of Bank of America stock. My full expectation was for the BAC stock to fall toward 7.0 flat before long, but it did so faster than anticipated. My view is that this deal is the second conducted by Buffet in order to win favor, the first being the investment in Goldman Sachs two years ago, during a time of need amidst battles for survival, at least of image. The Buffet favor is essentially a second Wall Street club membership fee. What Buffet earns is protection from Wall Street assaults, like shorting of stocks or even naked shorting, rumor mongering, investigations for bond or tax fraud, assists to hedge fund attack dogs, and more. He might have earned favors in the derivatives arena. Buffet has lined himself up for sweet deals, like perhaps in Fannie Mae home dispositions, or Credit Default Swap investments before a designed killjob. See the Finance Fortune article (CLICK HERE). The real story is not in the news disseminated, but items in the cracks where favors are won. The basic interpretation is that BOA is in dire need of a secondary stock issuance to recapitalize. It has resorted to alternative methods. So the Buffet deal added some legitimacy to a dead tree image. It will not work, as the stock will struggle to stay above the important $7 level. Look for a string of secondary stock issuances to come, made urgently necessary to finance the bond investor lawsuit awards. Expect narcotics money NOT to want to participate in payouts. That is the hidden pitched battle behind the scenes, the narco barons deciding to cut off BOA and to let it die. They are probably making preparations in recent weeks and months, saving the better parts.

The next asset sale of substance was the sale of $8.3 billion in Chinese Construction Bank stock, the 5% stake held by Bank of America. The buyers were the same sovereign wealth funds that bailed out the Greek banking sector recently. BOA sold 13.1 billion shares in CCB, but the comedy was in the press release. BOA claimed it really did not need the cash. Orwellian language cannot fool the wise. BOA is desperate for cash. In fact, the beleaguered bank struggles to abide by the Basel guidelines, as it cuts risk-weighted assets by $16.1 billion. The sale will generate about $3.5 billion in additional Tier 1 capital. The total on a single week was $13.3 billion in new capital which BOA assures it does not need. Try not to laugh. See the Zero Hedge article (CLICK HERE).

Other woes to Bank of America will make a severe dent on their cash and reserves position. The USGovt named BOA as a target in the mortgage bond lawsuit. Furthermore, the Federal Deposit Insurance Corp has rejected the proposed $8.5 billion self-designed limit on mortgage bond liability agreed upon with major players Blackrock, MetLife, and New York Fed. Worse, American Intl Group has filed a $10 billion lawsuit. It was a bold maneuver to attempt to cap the liability, but it drew attention. Far more players are involved as victims. For every major name as victim in mortgage bond fraud, another 10 smaller players exist, including cities and states. The blood will flow freely from the BOA balance sheet in coming months. See the Zero Hedge article (CLICK HERE).

◄$$$ CHRIS WHALEN BELIEVES BANK OF AMERICA SHOULD DECLARE BANKRUPTCY AND QUIT THE GRADUAL DISSOLUTION OF THE FIRM THROUGH JOB CUTS. WHALEN FORESEES BOND FRAUD LIABILITY AS THE SWORD TO KILL THE BIG BROKEN BANK. $$$

Asset sales on one side, worker parings on the other, Bank of America has shaped itself as a dead hollow tree without the resident fund flows required for limb maintenance. The army of insects has eaten its innards. Its water supply is toxic, the roots rotten. Chris Whalen is a superstar bank analyst. Curiously, he believes the BOA core operating businesses are fine. He sees no need for the bank to restructure them and releasing thousands of employees. The latest count was 40,000 workers cut. What Whalen fingers as an imminent dire threat is their ongoing liability from the mortgage underwriting that Bank of America's subsidiaries did during the housing bubble. The litigation exposure he regards could be staggering and costly. Whalen argues that it will bankrupt the company, forcing regulators to step in and restructure it. He does not believe delay is wise. Instead, Whalen says, the USGovt should seize Bank of America and restructure its debt, equity, and legal obligations immediately. Their operating businesses (retail branches, commercial lending, wealth management) should continue in function. The giant firm could then be refloated with a new ownership structure. Bank of America would be provided an opportunity to be clean, lean, and competitive, the model being General Motors and its supposed success story. However, no such seizure or restructure is planned or contemplated. So the big US bank flagship will rot in place, be subjected to relentless attack, and suffer from much more profound insolvency. It risks sinking under its own weight or toppling from a recession storm. See the Business Insider article (CLICK HERE). One an only wonder if legal prosecution will be part of any plan, before or after the bank's failure.

For a reliable confirmation of imminent demise, consult the Credit Default Swap rate, the bond default insurance cost. It has been zooming higher in recent weeks. In the second half of August, the CDSwap rate for BOA debt (death) insurance doubled from the 1.5% range to above the 3.0% level. See the Zero Hedge article (CLICK HERE) which is a little old. The Lehman failure in 2008 was foretold reliably by the same CDSwap device as warning signal. Reggie Middleton is an excellent bank analyst also. He reviews the US bank exposure to the Southern Europe sovereign debt that is in the slow process of grand ruin. His thorough work is always worth reading and digesting. He calls it a European soap opera that will have some surprising fallout on US banks. See the Zero Hedge article (CLICK HERE).

◄$$$ DISPOSITION OF FANNIE MAE OWNED HOMES WILL BE CARRIED OUT THE USUAL WAY, WITH BLATANT FAVORITISM. THE GOLDMAN SACHS CLAN WILL BE THE BENEFICIARY OF THE HEAVY DISCOUNT IN THE PROCESSING HOUSE. THE FASCIST BUSINESS MODEL PERPETUATES, NO BENEFIT TO THE MASSES. SOME DOWNWARD PRESSURE ON HOME PRICES IS COMING DURING A LIQUIDATION PROCESS. $$$

Recall the favoritism showed to the big US banks during AIG bailouts on bond default insurance. Recall the favoritism showed to the big US banks on toxic bond redemption by the USFed. The same will occur with disposition of Fannie Mae homes to be processed. The Fascist Business Model has not changed one little bit. A bargain processing plant is to be created, but not with public participation, only insiders, with flimsy justification. An enormous transfer of wealth from the public to private sector is about to begin. The USGovt will engage in liquidation in bulk of its massive portfolio of foreclosed homes owned by the HUD family, led by flagship cesspool steamers Fannie Mae & Freddie Mac. The buyers will be private investors in what are called vulture funds. These homes are the property of the USGovt, technically by the taxpayers and citizens collectively, but they will be sold to private investor conglomerates at huge discounts to real value. The controllers favor their brethren. The public is forbidden to participate. Dominating the buyer class of investors will be the private equity and hedge fund giants in the community, such as Goldman Sachs and its well placed subsidiaries. Some foreign sovereign wealth funds able bring $billions to each transaction are also invited, surely the back end of past favors to invest in USAgency Mortgage Bonds. The ravaged US citizens will receive pennies per dollar for the sold homes, but be permitted later to rent them back at market rates. The Wall Street mill continues to churn guaranteed profits.

The Federal Housing Finance Agency (FHFA), the USDept of Housing & Urban Development (HUD), and the USDept Treasury issued a formal Request for Information (RFI) concerning the disposition of the inventory of foreclosed homes owned by the USGovt agencies. They seek guidelines for executing the process of elite largesse, a facade. The RFI was actually written and structured by the investors who will participate, an easy step since Wall Street controls the USGovt finance, mortgage cesspool, and related operations. The RFI doubles as a trial balloon to check whether the public is fast asleep. Of course it is. The next step will be Request for Proposals, a formal bid and plan for these homes by investors. The citizen taxpayers will be kept away by stated higher ground goals, such as neighborhood enhancement, increased rental home supply, and stabilized housing market prices. The actual goal is a bulk sale privatization project for the exclusive Wall Street profit. The design is to create a wholesaler processor entity, which excludes the public. The plan will toss aside as impractical any public bidding by the people, since the volume is too big. This is truly a deep insider game, well designed long ago during the 2008 nationalization.

The entire massive HUD Portfolio of foreclosed homes is quietly managed by a handful of private firms, a group listed as Mgmt & Marketing Contractors. These M&M companies are principally owned by high ranking government officials from the various involved groups, the USDept Treasury, HUD, FHA, and other agencies. These factions will assure the correct buyers will win the bids, posing as fair. Expect a parade of real estate investment trusts (REIT) and real estate operating companies (REOC) or limited partnerships (LP) to be made available to retail investors later on, after meat on the table is gone, and only leftovers remain available. See The Street article (CLICK HERE). It will be very interesting to see if the insider clan of buyers through their large scale processing actually render harm to the housing price structure by offering thousands of homes at below market prices, just to clear the inventory. Doing so would lower the home prices generally. If they work together like a syndicate, which they are by subsidiary relationship, then expect them to hold the line on price, but at a cost of time to process the mountain of homes. Here is the important point. If they demand higher home prices in volume sales down the channel, then the processor vulture firms must be content in holding inventory just like the big US banks. The downward pressure on home prices will be felt, one way or another.

EUROPEAN CONTAGION & FRACTURE

◄$$$ EUROPE WILL BREAK UP. EUROPEAN LEADERS KNOW THE SYSTEM IS DOOMED. THE FIRST DEBT DEFAULT (CLEARLY GREECE) WILL SET OFF A CHAIN REACTION OF BIG BANK FAILURES. THE CRISIS EXTENSION IS NOT AVOIDABLE. THE COMMON EURO ARRANGEMENT WAS DEEPLY FLAWED, BUT IN MY VIEW BY DESIGN IN ORDER TO FACILITATE A DISASTER THAT WOULD INVITE INTEGRATION OF THE CONTINENT. $$$

Despite pledges and oaths registered by politicians and bankers, the European Union will fracture from its union. The most likely start is the Monetary Union that permits common Euro currency usage. It is doomed, since the sovereign bonds are deeply differentiated to the point of being at war with each other via arbitrage trading. The Euro currency structure is suffering from gross faulty design. Countries that are deep in debt have no flexibility, like with currency devaluations, and wealthy countries such as Germany are becoming deeply resentful a steady stream of welfare contributions into the black holes of southern Europe. The EU will break up, the sooner the better for all involved. The chronic degenerative financial crisis in Europe has put the future of the Euro currency in an impossible position, along with the Union itself. The Greek Govt default will trigger a financial crisis of a different magnitude, enough to lead to a veritable financial system collapse in Europe, both bonds and banks, which would plunge the entire world into chaos. Private debts have been transferred to the public sector, and now they are breaking the system. The solutions are exacerbating the situation. The EU has a larger economy and a larger population than the United States. The EU also has more Fortune 500 companies that the United States does. The Euro currency will become the first casualty. Its original birth was part of a master blueprint plan toward consolidated power, ordered by the supra-national trillionaires. The next chapter is uncertain, as power is shifting to the East.

The obvious need of massive bailouts to the next biggest nations outside Greece and Portugal will cripple the European financial system. Italian debt is triple the size of Greece, Portugal, and Ireland combined. The Euro currency is broken, its debt foundation fractured into several extremely heterogeneous platforms, the member nation sovereign debt. The Euro exchange rate has come down not from union fracture, but from assured rate cuts by the Euro Central Bank. The currency had shown stability, but with grossly different member nation bond yields. The future of the monetary union in Europe is being questioned across the continent. Grand bailouts are urgently needed for at least 5 or 6 nations in Europe that will probably soon default eventually anyway. The political will for continued bailouts is rapidly vaporizing in Central Europe, inviting a disaster. Chaos is likely to outpace the progress through negotiation and consensus, the markets moving faster than politicians. Most major European banks are heavily exposed to European sovereign debt, complicated by high leverage. When Greece defaults, and the bailout need is passed to Italy and Spain, several major European banks will fall in rapid succession. These banks, like their American counterparts, operate balance sheets marked at fictional high values that conceal their insolvency. Expect the next events to serve as thee important tipping point that sets off financial panic around the world. Even with a string of outsized bailouts, havoc will hit the big Western banks, extending to London and New York. The resulting recession will be painful, especially since the West never exited the last recession.

The following quotes are actually quite shocking. They are not in the news at all. They come from disparate important corners of Europe. These people openly admit that the financial system is on its deathbed, fully dysfunctional and broken. They realize the financial system in Europe is doomed.

1)      German Chancellor Angela Merkel: "The current crisis facing the Euro is the biggest test Europe has faced for decades, even since the Treaty of Rome was signed in 1957. If the Euro fails, then Europe fails. The Euro is in danger. If we do not deal with this danger, then the consequences for us in Europe are incalculable."

2)      EU President Herman Van Rompuy: "The Euro has never had the infrastructure that it requires. We are in a survival crisis. We all have to work together in order to survive with the EuroZone, because if we do not survive with the EuroZone, we will not survive with the European Union. This crisis in the EuroZone will strengthen European integration. That is my firm belief."

3)      Former German Chancellor Gerhard Schroeder: "The current crisis makes it relentlessly clear that we cannot have a common currency zone without a common fiscal, economic, and social policy."

4)      German President Christian Wulff: "I regard the huge buy-up of bonds of individual states by the EuroCB as legally and politically questionable. Article 123 of the Treaty on the EU workings prohibits the ECB from directly purchasing debt instruments, in order to safeguard the central bank's independence."

5)      Deutsche Bank CEO Josef Ackerman: "It is an open secret that numerous European banks would not survive having to revalue sovereign debt held on the banking book at market levels. All this reminds one of the autumn of 2008."

6)      Bank of England Governor Mervyn King: "Dealing with a banking crisis was difficult enough, but at least there were public sector balance sheets on to which the problems could be moved. Once you move into sovereign debt, there is no answer. There is no backstop."

7)      Intl Monetary Fund Chief Christine Lagarde: "Developments this summer have indicated we are in a dangerous new phase. There has been a clear crisis of confidence that has seriously aggravated the situation. Measures need to be taken to ensure that this vicious circle is broken."

8)      Prince Hermann Otto zu Solms-Hohensolms-Lich (Bundestag Deputy President): "We must consider whether it would not be better for the currency union and for Greece itself to go for debt restructuring and an exit from the Euro."

9)      Polish finance minister Jacek Rostowski: "European elites, including German elites, must decide if they want the Euro to survive, even at a high price, or not. If not, we should prepare for a controlled dismantling of the currency zone."

10)  George Soros: "We are on the verge of an economic collapse which starts, let's say, in Greece. The financial system remains extremely vulnerable."

11)  Stephane Deo, Paul Donovan, and Larry Hatheway of UBS: "Under the current structure and with the current membership, the Euro does not work. Either the current structure will have to change, or the current membership will have to change. Member states would be economically better off if they had never joined. European monetary union was generally mis-sold to the population of the Europe." (bullshxx, it was forced)

12)  Alastair Newton, strategist for Nomura Securities: "We believe that we are just about to enter a critical period for the EuroZone. The threat of some sort of break-up between now and yearend is greater than it has been at any time since the start of the crisis."

13)  Professor Giacomo Vaciago (Catholic University, Milan Italy): "It is clear that the Euro has virtually failed over the last ten years, even if you are not supposed to say that."

A desperation is clear and palpable to save the Euro currency and the European Union. The overwhelming consensus among the political and financial elite in Europe is that increased European integration in Europe is the answer, a danger signal. The original designers who forced the common Euro against the people's will have a plan for more integration, less member nation independence, more continental regulatory authority, and more federal rules. Watch for a united Gestapo security force. The desire is for an overarching government body atop the European Parliament, which has become a laughing stock entity of babbling demagogues. They strive to form the United States of Europe. First comes the shattered European banks, an extension of the crumbling sovereign debt. Watch for integration sold by authorities in Europe as the solution to the crisis, again without popular support. The people of Europe are opposed to deeper economic and political integration. For example, 76% of Germans indicate little or no faith in the Euro currency. A recent poll found that German voters are against the introduction of continental Eurobonds by a 5 to 1 margin. What remains is whether a major crisis induces the people of Europe to comply like sheep to the supra-national plan. They will most assuredly be terrorized with street violence, wrecked workplaces, lost income, cash & supply shortages, and ruined life savings. See the Before It's News article (CLICK HERE). Also, see the description of a perfect storm from the same journal (CLICK HERE). It will be very interesting to see if the Southern European nations break off from the common Euro and form their own second tier union. Currency devaluation would be permitted for stimulus, but at a cost of sudden price inflation. Europe has never united in its history without the conflagration of war. Integration might be acceded to avoid the ravage of war.

◄$$$ EUROPEAN SOVEREIGN NATION DEBTS ARE MUCH GREATER THAN THEIR CENTRAL BANK HOLDINGS, BY A FACTOR OF 10 OR 20 TO ONE. THE GOLD ASSETS ARE SUBSTANTIAL, AND TO DATE HAVE NOT SEEN SOLD AND LIQUIDATED. A SIDE POINT, IT IS DOUBTFUL THAT THE NATIONS OWN THEIR CENTRAL BANK ASSETS. $$$

Simply stated, Gold sales would not solve the vast European debt troubles, no more than they would the USGovt debt troubles. Two important points must be made. The Gold assets are greatly exaggerated after years of leased sales, and the nations do not own or have claims on the central bank assets. The deeply indebted nations of Southern Europe are under pressure from their richer creditor neighboring nations to the North to sort out their finances. In no way will they be able to sell off some treasury assets and erase the debts. During all the wrangling over budgets, the austerity spending cuts, the asset sales, the domestic aid to banks, the PIIGS nations have not yet sold any Gold reserves to offset, reduce, or service their debt. Meanwhile though, the Gold price has risen to record highs, touching $1900 per ounce. Some lame defense came from Natalie Dempster, director of government affairs at the World Gold Council. She said, "Foreign exchange reserves are held and managed by central banks, not by governments. FOREX reserves are set aside for specific purposes, such as defense of currency, payment of external debt obligations, and payment of imports. In the past you could have had incidences where governments might try to over-stimulate their economies by running exceptionally loose monetary policy before an election. That is a reason why it is critical, in an advanced economy, that central banks are independent." What a crock!! They print money, cover toxic bonds at lofty values, and offset $trillions in cozy central bank loans instead, an exercise of their independence. They also organize money laundering.

Despite a record high price, the Gold market is overwhelmed by the enormous magnitude of European debts. Some details. Over 750 tons of gold currently sit in the central bank vaults of Portugal, Greece, and Spain. Extend to the full PIIGS pen. Among the nations of Portugal, Ireland, Italy, Greece, and Spain, they hold 3233 tonnes of Gold, worth some EUR 132 billion (=US$190 billion). That sum equals 73% of the 2010 annual supply of gold bullion from global mining operations and sales of scrap. Contrast to debt levels. The combined outstanding PIIGS public debt is around EUR 3.289 trillion, according to the IMF. The complete sale of Portuguese central bank Gold, all 382.5 tons of it, would only raise some EUR 14.9 billion, under 20% of just one recent EU bailout package. Italy is the largest gold reserve holder among the PIIGS nations, and the fourth largest sovereign holder of gold bullion. Its 2450 tons are worth EUR 95 billion at current prices. Contrast that to its national debt in excess of US$2.5 trillion, not even 5% coverage. The extent of the debt burden is so great that in no way would official Gold sales offer a solution. Sales would only highlight the grotesque insolvency of nations and their big banks from the publicity and questions of motive. As asterisk, the USGovt owns no Gold at all, its official statement a big fat lie that lists Deep Storage Gold, nothing more than mountain ore bodies. The entire West has borrowed a higher standard of living, the debt for which is due and unpayable.

◄$$$ THE EURO CENTRAL BANK INCREASED ITS P.I.I.G.S. BOND PURCHASES, AS LAST RESORT BUYER. NOBODY WANTS THEM, NOT THE MARKET, NOT THE BANKS. WHILE CLAIMING PRUDENCE, THEIR BALANCE HAS TURNED ROTTEN AND TOXIC. A STRANGE DEVELOPMENT HAS COME. EURO-CB LENDING HAS DRIED UP, BUT DEPOSITS SOAR. THE EUROPEAN BANKING SYSTEM IS SEIZING UP, FROM THE INTERNAL CHANNELS. INTER-BANKING LENDING HAS HALTED, FROM SUSPICION OF BOND QUALITY AND DISTRUST, JUST LIKE IN THE UNITED STATES IN SUMMER 2008. $$$

So the Euro Central Bank boasts they are not the USFed, meaning not as reckless. The Jackass tends to disagree, since the EuroCB has bought every conceivable worthless sovereign bond from Southern Europe, and has tipped off their next interest rate cuts. The next QE is by the ECB, as part of the what the Hat Trick Letter has been describing as Global QE. It has arrived, but without fanfare or recognition, but in clear terms. While some speculated the ECB debt monetization of insolvent PIIGS debt would range between EUR 10 and 15 billion, the next round was specified as EUR 6.7 billion, as another EUR 1.3 billion in short-term assets mature. However, the ECB has been very busy since early August. The new purchase follows the EUR 22 billion and EUR14.3 billion in the previous two weeks. All tolled, their total debt monetization facility has gobbled up EUR 120.3 billion in toxic bonds. Money is draining from the system, since whatever the EuroCB purchases, the former bank owners cannot use as collateral in loans. In making the announcement, helmsman Trichet at the toxic paper dump boasted that their balance sheet was not as large as the USFed or Bank of England. They are moving in the same direction in the toxic field, to be sure. It is all ruinous central planning. As reliable Tyler Durden stated, "Contrary to what self-aggrandizing economist PhDs claim, somehow the ECB did not refute the fact that there is central bank risk. Yes, even with all that fiat printing capacity." Notice the skyrocketing in toxic asset purchases since August. See the Zero Hedge article (CLICK HERE).

The European banking system is showing deep distress, evident in the EuroCB balance sheet data. As inter-bank lending has slowed to a trickle, the ECB loans have virtually halted also. But bank deposits held at the ECB have soared 7-fold. Bank deposits held at the central bank have risen from EUR 17.2 billion to EUR 121 billion since the early summer. Money held and sequestered with the central bank is not put to work in creating capital formation or promoting business expansion. Just like with the USFed, the Excess Reserves remove and deny lending capital, same in Europe. Just like with the US banking system, inter-bank lending was suspicious in 2008 as banks did not trust the mortgage bonds from subprime and higher rated bonds. Distrust within banks is a hallmark signal of seizures within the system. The European banks are less willing to allocate excess capital, putting it in the safety of the European money printing Politburo. They repeat the US seizure pathway. Consider the ECB data on SMP usage, the secondary debt purchases, which has risen sharply in recent weeks. See the Zero Hedge article (CLICK HERE).

◄$$$ FINLAND HAS DEMANDED COLLATERAL AGAINST GREEK GOVT BONDS. GREAT DISRUPTION TO THE ENDLESS BAILOUTS HAS COME FROM A RESPONSIBLE CORNER, FINLAND. WHAT INNOVATION TO REQUIRE SOME COLLATERAL!! IT HAS CAUSED PROBLEMS WITH THE MINDLESS BAILOUTS. OTHER NATIONS SEE THE WISDOM, WHILE THE COMMISIONERS FAVOR ENDLESS BANK AID, LIKE IN THE UNITED STATES. $$$

Finland has some clout. They are not a deficit nation. Their opinions are listened to. The Finnish Govt has put its foot down and made tough demands. They will not agree to further Greek Govt debt bailouts without collateral placed formally in linkage. The demand has taken the European leaders off guard. If they must reject the demand, the retaliation in Helsinki would be quick. A new government coalition would put the Euro-Skeptics in power, and nix all future bailout proposals. The hostile opposition party in Finland has opposed all bailouts as foolhardy and lunatic. Luxembourg Prime Minister Jean-Claude Juncker, who also chairs the EU finance meetings, has pursued mediation but criticizes the call for collateral. He openly expressed dislike for the collateral mechanism and bilateral arrangements (Finland versus Greece apart from EU, ECB, IMF). The Austrian Finance Minister Maria Fekter suggested a EuroZone summit of finance ministers, as she is deeply dissatisfied with current procedures and participants. A ripple effect occurred within both Austria and the Netherlands, after they demanded similar collateral treatment. At risk is the entire second rescue package for Greece by EU nations. Finland stuck to its plan rigidly, even fighting off criticism by inviting other nations to make similar demands. The European Commission has publicly expressed disfavor for what they call excessive collateralization in the Greek bailout. They see no need to limit big bank bond redemption, like in the United States. They are devoted to the bankers. It is ironic that Germany holds the power, provides the funding, yet tiny Finland kiboshes the bailout process. The event highlights how national politics is increasingly at odds with efforts to forge European unity, The comprehensive response to the debt crisis has been complicated. See the Bloomberg article (CLICK HERE).

◄$$$ THE MOST HIDDEN STORY IN EUROPE, APART FROM THE DEEP FRICTION BETWEEN THE GERMAN BANKERS AND THE EURO CENTRAL BANK, IS THAT THE THE INTL MONETARY FUND IS OUT OF FUNDS. IT HAS A PLAN FOR REPLENISHMENT, BUT THE MOST STRAINED NATIONS ARE ASKED TO PONY UP 10 TO 20 TIMES AS MUCH AS PREVIOUSLY. CHINA GOT OFF EASY, WHEREAS IN THE PAST THEY HAVE MADE SIZEABLE CONTRIBUTIONS. WESTERN BANKER POWER IS BEING PUT TO THE TEST. $$$

The Intl Monetary Fund has been in the news this spring with a sexual assault story. That enabled its chief to be replaced by Christine Lagarde conveniently. The IMF is back in the news, this time to fund its depleted coffers. Back in April 2010, the IMF announced that it was expanding its New Arrangement to Borrow (NAB) multilateral facility from its existing $50 billion to $550 billion, an 11-fold increase. But the funds have not arrived. That translated then to SDR333.5 billion, the Special Drawing Rights comprised of a major currency basket. The deep distress of the PIIGS sovereign debt followed the IMF appeal last year. The bailouts, primarily to Greece, were committed despite the total lack of effectiveness. That is, unless you are a banker and saw your toxic bonds redeemed, just like in the United States with TARP Fund devices. Something big was coming 18 months ago, and something big is still coming in the next few months. According to Dow Jones news service, the Intl Monetary Fund will likely furnish a $580 billion resource pool in coming weeks to ensure the next sovereign debt bailouts. The pool of supplementary resources is expected to be activated when needed to forestall or cope with imminent threats to the international monetary system. So one can conclude that a crisis is set to erupt and grand funding requirements will hit.

The IMF met on September 9th to hammer out its tin cup needs when it goes begging. It must approve re-activation of the resource pool if the fund is to continue tapping it beyond September. It claims a large majority of the board members are in favor of re-activating the NAB facility. The crisis is entering a dangerous new phase as the risk of Greece defaulting overflows while Italy and Spain have come under extreme scrutiny over sovereign debt. The pool can only be activated by the board after the IMF managing director makes a special request. So far, the IMF has already allocated nearly $7 billion from the formal arrangement. Currently only $331 billion is currently available for use. Based on the nearly $400 billion the fund can commit to within the next year without the special kitty, the IMF would only have around $60 billion on hand for special loans. The special resource base, funded through bilateral loans from countries such as the United States and China, was designed as a temporary measure. It is expected to be replaced by an agreement late last year by the IMF board of directors to increase quotas of donations by each member nation.

The board of IMF governors agreed in December to roughly double quotas from around $375 billion to around $750 billion. But out of the 187 member countries, only 17 have legally accepted the increase, including Japan, the UK, and South Korea, by Parliamentary action. Most of the countries with the biggest quotas, such as the US, China, and Germany, have not yet completed the formal legal approval process to deliver the funds within their government bodies. None of the biggest IMF contributors have ratified the formal quota increase. Tyler Durden concluded. "The US will be stuck in legal limbo when Europe pulls a Greece, collects American cash, and then finds it has no collateral to pay back with. There is little we can add here that was not said during one of the two prior massive IMF intervention attempts, both of which predicted a huge global shake up within months. Which is why we will end this post with the same words we ended the previous iteration in the IMF global rescue series: US taxpayers: our condolences." See the Zero Hedge article (CLICK HERE).

Colleague Craig McC in California pitched in. He wrote, "While the G7 and the IMF are flitting about this weekend trying to save the banksters, buried in the linked ZH article is the fact that most of the member countries have not secured Congressional or Parliamentary approval for their December 2010 pledges. So, the ability of the IMF to act on any bailouts seems to be one of BIG HAT & NO CATTLE. Also, an interesting reader comment pointed out that the IMF has an alarmingly high burn rate of over $650 billion per year." For an important fund with global reach, their ambitious (and destructive) lending plans seem to far exceed their available funds. Regardless, that is a huge burn rate, put at risk by lack of funding. The prestige, power, and influence of the Western bankers might be put to the test, the test being their continued power.

◄$$$ THE USGOVT WILL CHANGE COURSE AND TAKE THE PATH TO HIGHER DEFICITS. THE EXPANDING AUSTERITY SPENDING PLANS ADOPTED WIDELY BY NATIONS WITHOUT A PRINTING PRESS ASSURE A WESTERN RECESSION THAT WILL AFFECT CHINA. THE DEFICITS WILL GROW WITH OR WITHOUT SPENDING CUTS, THE RIPPLES COMING FROM THE PUBLIC OR THE PRIVATE SECTOR. NO FIX IS WITHIN REACH. $$$

Portugal plans the biggest fiscal spending cuts in 50 years. Do not be impressed, except that the momentum of growth without mental thought might be curtailed. The proposed cut in spending is very minor, a plan that would reduce the budget by a mere 0.7% of annual economic output (GDP) over three years. It illustrates how even moderate factions are politically unable to make significant reductions in spending. The leaders hail the cuts as unprecedented, which they are. They simply mean little. The Lisbon government intends to meet its budget deficit targets, as part of the agreements made when Portugal scored a bailout in May. The country continues to receive a total of EUR 78 billion (=US$112 billion) from the European Union and Intl Monetary Fund. See the BBC article (CLICK HERE).

The fiscal spending cuts bring to bear an important dampening factor. With so many formal cutbacks in spending, in no way can a Western recession be avoided, especially in the very nations beset by problems that urge bailouts. The public sector has born a disproportionate load in supporting jobs and economic growth, a queer noxious imbalance to be sure. As cutbacks are enforced, job cuts are quickly felt with much resentment. The situation is not fixable in many weaker nations. Neither is the USGovt is ready yet for spending cuts. They have another grand round of economic stimulus coming. They will talk about prudence and sensible decisions, but the ugly face of recession is in the room. Both spending cuts and tax hikes drag the economies down. A $2 trillion deficit awaits the USGovt in the next fiscal year, as a recession takes a giant bite out of revenues, and the cost of stimulus is recorded. The paradox noted is that deficits will grow from fiscal cuts, causing a recession ripple effect emanating from the public (govt) sector, or deficits will grow from recession, causing a recession ripple effect emanating from the private (business) sector. The Austerity plans are all poison pills. The year 2012 is certain to be tumultuous. This is much like a very long night followed by the stench of a new dawn, with the fresh smell of napalm and rotten flesh.

◄$$$ THE GREEK GOVT BOND YIELD HIT 88% IN DIRECT RESPONSE TO SQUABBLES AND THREAT OF GERMAN FUNDING REFUSALS. DENIALS ABOUND, BUT REALITY RULES. THE GREEK BOND MARKET IS A TOTAL WRECK. A GREEK DEFAULT COMES. $$$

The Greek 1-year bond yield actually hit 88.48% in a surge two weeks ago. The market response to the internal discord was clear. Bond holders hastened further their abandonment. Curiously, the clowns among banker helms were silent. They prefer to recite mantras about unity, but they are on orders from the supra-national masters to preserve the union, to bail out the bank assets, to execute collateral grabs, and to consolidate power during crisis. By wrecking the government finances, they further their global plan. The absent comments from Trichet, the EuroCB members, and EU commission was deafening. The implications of the bond yield surge is simple. A debt default is expected. The sovereign bond market is fast becoming a joke. See the surge at the end of August extend into September. If the default is ignored, it will not go away. The incoming ECB president Mario Drahgi is among the silent captains. A Greek bond yield of 100% would make history. The mindlessness of the situation is evident in the outpouring of calls for the Greek Govt to cut back in spending much more. Doing so would slow the economy further, lift deficits, and press greater need for bigger bailouts. No solution exists except default, which was forecasted over a year ago by the Jackass. See the Global Economic Analysis article (CLICK HERE).

◄$$$ THE CDSWAP MARKET ASSIGNS A 98% LIKELIHOOD TO A GREEK DEFAULT. THE ENTIRE EUROPEAN BANK SECTOR IS SEEING A FAST RISING CDSWAP PRICE. THE FRENCH BANKS ARE EXPECTED SOON TO BE DOWNGRADED IN A SWEEP. THEIR DEBT WAS DOWNGRADED, AS IT HAPPENED ON WEDNESDAY. ALL SOUTHERN EUROPE IS UNDER EXTREME CONSTANT PRESSURE. BEWARE OF FRANCE, THE PIGS LOOKALIKE. $$$

The market assessment on Greek Govt debt default has risen to 98% in the next five years, a virtual certainty. The smart money is pricing in a near-term default, expected to trigger a tumultuous response since the big banks have exposure. Even small exposure will result in a big effect, due to leverage and basic insolvency so pervasive in the system. It will trigger a string of events. The Credit Default Swap contract to insure Greek debt costs $5.8 million upfront and $100k annually to insure $10 million of Greek debt for five years. The initial advance cost used to be $5.5 million on September 9th, according to CMA. The austerity measures put in place have worked exactly like the poison pills described in the Hat Trick Letter. The Greek Govt deficit has widened 22% in the first eight months. Its 2-year note yield has climbed toward 70%, and its stock market is in constant turmoil. Here is the calculation method. The default probability for Greece is based on a standard pricing model that assumes investors would recover 40% of the bond face value upon a failure to meet its obligations. The latest recession estimate is a 5% economic decline in 2011, as austerity measures deepen a recession that has spanned three years. The contagion is spreading across the continent and beyond. The CDSwap prices for European bank debt insurance have risen to the highest levels yet, in response to reports that French banks will be downgraded in a sweep. That would cause quite the havoc. They have heavy exposure to Greek bonds. The Markit iTraxx SovX Western Europe Index of CDSwaps on 15 governments soared 18 basis points to a record 354 last week. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 14 basis points to 3.14%. The subordinated index jumped 15 to 5.50%, both the highest ever on the broad financial index. Data is from JPMorgan sources.

Suki Mann from Societe Generale in London wrote, "The contagion impact of a default will be severe, because next in the firing line will be Italy, Spain, and it will take in the whole of the European banking sector too. This trio are already under intense pressure, but it will get much worse." The other PIGS nations also fare poorly on debt insurance, the most reliable signal for default and failure. Balance sheet reports, stress tests, and formal filings are loaded with deception and fabrications. Credit Default Swaps on Portugal, Italy, and France surged to records, according to CMA, which is owned by CME Group and compiles prices quoted by dealers in the privately negotiated market. The CDSwaps incorporate widely understood factors off the balance sheet. Debt insurance for Portugal jumped 79 basis points to 12.13%, for Italy it rose 40 basis points to 5.03%, and for France was up 11 bpts to 1.89%. Although the French debt insurance is not as high, it is rising noticeably. Then consider the banks. Credit Default Swaps on BNP Paribas, Societe Generale, and Credit Agricole, the big three French banks, surged to record highs under the cloud of imminent Moodys downgrades. CDSwaps on SocGen went 53 basis points higher to 4.43%, Credit Agricole increased 41 bpts to 3.31%, and BNP Paribas rose 31 bpts to 3.06%, according to CMA. The downgrades are expected when the review period concludes, which is soon. The high risk of default extends across European corporations, not just banks. The cost of insuring corporate debt rose to the highest levels in almost three years, according to JPMorgan data. The Markit iTraxx Europe Index of 125 companies with investment grade ratings was up 6.5 basis points to 1.985% after rising to as high as 2.04% recently. See the Bloomberg article (CLICK HERE).

It happened on cue, as the downgrade came on Wednesday September 14th. The ratings agency Moodys cut by one notch in a debt downgrade of Societe Generale and Credit Agricole, due to Greek debt exposure. They left BNP Paribas unchanged but on watch, citing their greater profitability and capital base as capable to serve as adequate cushion to soften the damage. France's biggest bank announced a plan to sell EUR 70 billion worth of assets to help ease investor fears about leverage and funded losses that have struck its two main rivals. Alternative plans for floating the controversial EuroZone Bonds were previewed in other disclosures, despite how no nations wants them. See the Yahoo Finance article (CLICK HERE).

◄$$$ ITALY CONDUCTED A LOUSY DEBT AUCTION IN LATE AUGUST. THE RESULTS ARE BAD ENOUGH TO PUSH THE EURO CENTRAL BANK INTO FASTER BOND BAILOUTS. BOND MARKET DETERIORATION PROCEEDS, WHILE THE ITALIAN GOVT BACKTRACKED ON AUSTERITY MEASURES IN DEFIANCE. THE MAGIC 5% MARK ON BOND YIELDS HAS BEEN PENETRATED IN ITALY, SIGNALING ALARMS. $$$

Many auctions have taken place. A few had an impact on policy and perceptions. In late August, Italy conducted a bond auction that went sour. The bond market reacted badly. The auctions have been watched with greater scrutiny in recent weeks. The Italian Govt conducted an auction of EUR 7.74 billion in total, of 3-year and 10-year maturity. The significance is enhanced by the rule that the EuroCB is forbidden to purchase bonds at primary issuance. Signs of deterioration were watched, in the wake of EUR 40 billion of bonds lapped up by the EuroCB in August up to that point. The yields rose 11 basis points in the Italian Bund spread, and the Bid/Cover ratio was horrible at 1.32 and 1.27 respectively on the 3 and 10 year maturities. The 5% yield was breached, a notable event for Italy. Tyler Durden put it well. "The concern is that even with the ECB buying debt in the secondary market (effectively monetizing), the tail is unable to wag the dog strongly enough. If the European Financial Stability Fund is not activated soon enough, and expanded significantly, we expect to see the market test the ECB once again, and SMP purchases to soar very soon." See the Zero Hedge articles (CLICK HERE and HERE). Some typical Italian defiance followed in ensuing days. The obstinate Parliament reversed decisions toward greater austerity, probably knowing of their bitter poison pill effect. They have removed tax hike proposals on high wage earners. Instead, tax cheats will be pursued, sure to go nowhere but it makes good press.

Last week, another important Italian Govt bond auction took place. Italy sold EUR 3.9 billion from a new benchmark 5-year bond at 5.6% on average yield. The yield was above the recognized alarm level of 5% again. Compare to 4.93% during an auction of similar securities that were sold on July 14th. Demand was a very low 1.28 times the amount on offer, the Bid/Cover ratio, compared with 1.93 times at the previous sale. So participation is down significantly, as trust fades. The yield on Italian Govt 10-year bonds rose to 5.73% after the auction, pushing the Bund spread up 17 bpts to 400 basis points.

◄$$$ ENTER THE CHINA CARD. THE DEEP POCKETS OF CHINA HAVE BEEN CALLED UPON AS LENDER TO ITALY, A NATION MOVING TOWARD CRISIS. CHINA WISHES TO PROTECT ITS TRADE CUSTOMER, BUT OTHER ASPIRATIONS ARE RELEVANT. THE CHINESE CONTINUE THEIR STRATEGY OF CAPTURING EUROPE, THE GREAT PRIZE. AN EXPORT MARKET MUST BE ASSURED. $$$

China owns $3.2 trillion in FOREX reserves. The Chinese Govt has entered summit talks with the Italian Govt for coverage of some yawning sovereign debt to be financed and rolled over. Finance Minister Giulio Tremonti met with Chinese officials in Rome early in September, talks that continue and expand. The Chinese Foreign Ministry assured that Europe is one of their main investment destinations. Italy joins Spain, Greece, Portugal, and even investment bank Morgan Stanley among distressed borrowers that have appealed to China for investment stakes since the 2007, when the global financial crisis took root. China has a stated intention to help stabilize the EuroZone and its economy. It is a highly important trade partner. The image of China coming to the aid of Europe surely enhances the Asian emerging giant. A desire exists to avoid a domino effect that causes much further damage to the Western economies. Italy is fulfilling a minimal role in keeping their deficit in check. The Govt led by Prime Minister Silvio Berlusconi hurried passage of a EUR 54 billion austerity package to convince the European Central Bank to aid in their debt purchase. The magnitude of Italian Govt debt is formidable. At EUR 1.9 trillion (=US$2.5 trillion) in size, it amounts to more than Spain, Greece, Ireland and Portugal combined. The vulnerability to higher borrowing costs is tremendous. The Euro Central Bank will probably in the end act as main buyers of Italian Govt bonds, but the Chinese are involved in the process for leverage. See the Bloomberg article (CLICK HERE).

The Chinese motives are many, and to a great extent hidden from view. China is not a charitable organization. They wish to buy industries, and Italy has some key corporations. China wishes to assure a lock on the entire retail chain across Europe. They are not so interested in preventing contagion as the Western press claims. They wish to capture economies, much more interested in hard asset conversion of their toxic USTBond assets in store. They are not so much supporting the European Union as capturing it.

GERMANY AS GATEKEEPER

◄$$$ GERMANY SERVES AS THE FERRYMAN TO HADES, THE KEYHOLDER AT THE PRISON, THE GATEKEEPER TO THE NEXT DARK WRETCHED PLACE. THE GERMAN GOVT IS READYING A PLAN TO AID GERMAN BANKS WHEN THE GREEK GOVT DEBT MOST ASSUREDLY DEFAULTS. THE EVENT IS IMMINENT. THE MOVEMENT TO AID BANKS IS CONFIRMATION OF THEIR INSOLVENCY, AND PROOF OF THE STRESS TEST BEING A SHAM, JUST LIKE IN THE UNITED STATES. THE BANKERS BUY TIME, BUT IT IS FUTILE. $$$

Germany is making ready its plan to provide huge formal aid to its big banks if and when Greece defaults on debt. In the likely event that Greece fails to meet the terms of its aid package and defaults, the German Govt is shaping a grand finance plan to shore up banks. The emergency plan involves measures to help banks and bond insurers that must absorb a possible 50% loss on their Greek bonds if the next tranche of Greek bailout funds is withheld, according to anonymous sources from the actual private deliberations. The urgent requirement is to recapitalize the banks, even without stating so. Some call this Plan B which underscores the German concerns. German lawmakers have ramped up criticism of Greece, threatening to withhold aid unless the nation of antiquity meets the terms of its austerity package, after an international mission to Athens returned, only to suspend its report on the wrecked country's progress. German Finance Minister Wolfgang Schaeuble summed it up to Parliament, saying "Greece is on a knife's edge. [If the Athens government cannot meet the aid terms,] it is up to Greece to figure out how to get financing without EuroZone help." The situation is dire. Germany expects a default. The German Govt is awaiting the details on the Greek progress report. Last week Credit Default Swaps insuring Greek sovereign bonds jumped 212 basis points to a record 32.38%, according to CMA. The 5-year contracts signals a 92% probability the country will not meet its debt commitments. See the Bloomberg article (CLICK HERE).

Greece has failed to place their short-term bill rollover as required. Thus witness a declaration by the market that even for short-term paper, the bond market has lost confidence in Greece. The other hardly hidden signal is the rapid decline in the Germany DAX stock market index. The DAX is down 30% since late July in a shocker dive. The debt default from the South is being anticipated, with dire impact. Karl Denninger summarized. The conclusion is in three parts. Coincident with the news hitting the wires was a massive flow of money into the Japanese Yen and out of the Euro currency, a monstrous safety trade of capital flight. Imagine hot money moving out of Europe. See the Market Ticker article (CLICK HERE).

1)      A Greek default is considered credible by Germany as they are taking official actions related to that possibility. No more denials.

2)      German banks (as well as French banks and other big banks) are insolvent, carrying these bonds at well above their actual value in the marketplace. To carry them at proper loss values (quoted as 50%) means an instant need to recapitalize the banks. Regard the domestic bailout plan in Germany as an official statement of proof that the banks are lying about their balance sheets and are in fact insolvent.

3)      Recall that stress tests were conducted in Europe. The public was reassured recently about bank conditions, with no need for capital. They will indeed require massive capital.

◄$$$ G7 FINANCE MINISTERS PREPARE FOR THE STRING OF DEBT DEFAULTS IN SOVEREIGN DEBT FROM SOUTHERN EUROPE. THE G7 SAYS CENTRAL BANKS ARE READY TO PROVIDE LIQUIDITY AS REQUIRED. THEY ARE IN FULL PANIC MODE. $$$

The panic stricken Group of Seven is the club designed for the prevention of harm to the Status Quo of Anglo banker power. Its formal statement was made quickly and without dubious language, a confirmation of meltdown and urgency. They almost never offer plain statements in clear language. They will support the big Western banks, and claim to tackle the economic slowdown. Here are the best meaty portions of their communique released.

"We met at a time of new challenges to global economic recovery, with significant challenges to growth, fiscal deficits, and sovereign debt, stemming from past accumulated imbalances. This is reflected in heightened tensions in financial markets. There are now clear signs of a slowdown in global growth. We are committed to a strong and coordinated international response to these challenges. We are taking strong actions to maintain financial stability, restore confidence and support growth. In the United States, President Obama has put forward a significant package to strengthen growth and employment. Euro area countries are implementing the decisions taken on July 21 to address financial tensions, notably through the flexibilization of the European Financial Stability Fund. Japan is implementing substantial fiscal measures for reconstruction from the earthquake while ensuring the commitment to medium-term fiscal consolidation. Fiscal policy faces a delicate balancing act. Given the still fragile nature of the recovery, we must tread the difficult path of achieving fiscal adjustment plans while supporting economic activity, taking into account different national circumstances. Monetary policies will maintain price stability and continue to support economic recovery. Central Banks stand ready to provide liquidity to banks as required. We will take all necessary actions to ensure the resilience of banking systems and financial markets. In this context we reaffirm our commitment to implement fully Basel III. We will consult closely in regard to actions in exchange markets and will cooperate as appropriate. We look forward to working with our colleagues in the [expanded] G-20 and the IMF in the coming weeks to rebalance demand and strengthen global growth. As previously agreed, structural reforms will make an important contribution in this regard." What they call support for growth and stability is actually bond redemption for bankers on their toxic asset holdings. Notice the genuflection before the Basel fortress, whose directives on bank reserve management have invited open hostility from JPMorgan CEO Jamie Dimon. See the Zero Hedge article (CLICK HERE).

◄$$$ A RIFT GROWS BETWEEN GERMANY AND SWITZERLAND. AT LEAST A MAJOR SWISS BANK OPENLY DISCUSSES GERMANY LEAVING THE EURO MONETARY UNION, AND REVERT TO THE STRONG D-MARK CURRENCY. THE SWISS ARE INDIRECTLY ADMITTING THAT A GERMAN DEPARTURE COULD MEAN A SUDDEN DEATH EVENT FOR TWO MAJOR SWISS BANKS. $$$

The Union Bank of Switzerland has quantified the impact cost to one or more countries leaving the Euro Monetary Union. They focus on Germany. They wrote, "Were a stronger country such as Germany to leave the Euro, the consequences would include corporate default, recapitalization of the banking system, and collapse of international trade. If Germany were to leave, we believe the cost to be around EUR 6000 to EUR 8000 for every German adult and child in the first year, and a range of EUR 3500 to EUR 4500 per person per year thereafter. That is the equivalent of 20% to 25% of GDP in the first year. The economic cost is, in many ways, the least of the concerns investors should have about a break-up. Fragmentation of the Euro Monetary Union would incur political costs. European soft power influence internationally would cease, as the concept of 'Europe' as an integrated polity becomes meaningless. It is also worth observing that almost no modern fiat currency monetary unions have broken up without some form of authoritarian or military government, or civil war."

The UBS research team avoids the topic, but widely believed is that the banking impact on sovereign debt default and non-Euro currency devaluation within the EuroZone would kill both UBS and Credit Suisse. These are the two flagship giant Swiss banks. They are already under siege for toxic bonds, ruined Eastern Europe mortgages, and the backfire of gold leases. They contend with hundreds of $million lawsuits over failure to deliver gold from allocated accounts. They do not mention them, but my source stresses these points, and has stressed them for a few months. The report cited the popular Mutual Assured Destruction rabble made popular by Hank Paulson, the last US Treasury Secretary. Everybody is ruined unless banks are given welfare, the usual klapptrapp. Translation is easy. Save the big banks or lose your children in war. The safest conclusion taken from the UBS report is that Germany is actively considering abandoning the Euro currency and that Swiss bankers are worried sick. See the Zero Hedge article (CLICK HERE). Catherine Austin Fitts pitched in with a quick comment. She said, "Nonsense. It is essential to terrify others if gaining control is wanted. This is all part of the fraudulent inducement trap. This is not a debt crisis, but rather a re-engineering. It is a phony crisis designed to centralize and shrink the economy." Although surely not phony as a crisis, it is indeed a crisis that is orchestrated. The banksters must be getting very scared. For a breezy survey of the German landscape, see the UK Telegraph article entitled "German Endgame for EMU Draws Ever Nearer" by Evans-Pritchard (CLICK HERE).

◄$$$ A KEY DEPARTURE OCCURRED AT THE EURO CENTRAL BANK BRAIN TRUST. THE GERMAN ECONOMIST WANTS TO MAKE SOME DISTANCE FROM RUINOUS POLICY, AND RETURN TO THE GERMAN FOLD. A MAJOR RIFT WITH STEADY DISSENSION CAN BE INFERRED WITHIN THE EURO CENTRAL BANK. $$$

European Central Bank chief economist Juergen Stark announced a surprise resignation from the divided central bank. He cited personal reasons, and will remain until a successor is found.

Internal conflict among the ECB officials over its controversial bond buying program is cited as the cause of Stark's exit, and another key exit. The EuroCB has a ruined balance sheet, smaller than the USFed, but loaded with toxic bonds purchased at generous prices in bank redemptions. In February Axel Weber quit the ECB over the central bank's bond buying policy. The ECB president, Jean-Claude Trichet is due to retire at the end of October. Manfred Neumann is Economics professor at Bonn University. He said, "This is remarkable. Stark held the same view of the bond buying as Axel Weber and the current Bundesbank president. This is a sign of huge problems within the central bank. The Germans clearly have a problem with the direction of the ECB." See the BBC article (CLICK HERE).

◄$$$ OBSTACLES FROM THE GERMAN HIGH COURT DID NOT ARRIVE. THEY PUNTED, IN A SHOW OF POLITICAL EXPEDIENCE. MANY OBSERVERS EXPECTED A SOLID ROADBLOCK OF MASSIVE TREES TO BE FELLED ON THE BAILOUT ROADWAY. THE COURT SUGGESTS MORE PARTICIPATION IN DECISIONS BY THE GERMAN PARLIAMENT. WHAT THE COURT DID ACCOMPLISH WAS TO RENDER UNCLEAR THE MECHANISM FOR FUTURE BAILOUTS. $$$

The German High Court rejected the sovereign debt bailout lawsuit challenges. Chaos has been averted, but political wrangling is assured to continue. The Constitutional Court rejected on September 7th a series of lawsuits aimed at blocking German participation in bailout packages for Greece and other EuroZone countries. They urged that Parliament must have a bigger voice in future rescues. The judges ruled that German participation in European bailout funds has been conducted properly, but future work will need to be more closely coordinated with legislators. In other words, it was not legal, but maybe the next deals can be made legal. This was a pure punt of responsibility to sidestep being identified as those who pulled the lever that broke the system wide open. The hidden damage might be to the European Financial Stability Fund, whose potential has been weakened. The big bailout fund might not be easily replenished. The ruling confirms the view that the German piecemeal approach on the debt crisis is not likely to change. The next bailout will probably be put before the German Parliament in a formal vote. Carte blanche on deal making for Euro stabilization is not to be tolerated further. The introduction of common Euro area bonds has been rejected, a casualty, seen as inviting unforeseeable burdens on the federal budget. The continental bond is shaping up to become the next battleground. The only certainty is the lack of clarity for rescue mechanism on future bailouts. Uncertainty will remain high, along with volatility. See the UK Telegraph article (CLICK HERE).

◄$$$ A GERMAN PLAN HAS GATHERED STEAM TO EXPEL DEBTOR NATIONS. THE PROCEDURE MUST BE FORMALIZED. TOLERANCE FOR LYING ON ECONOMIC CONDITIONS, BANK SOLVENCY, AND ABILITY TO REPAY DEBT HAS WORN THIN TO THE BREAKING POINT. THEY WILL BE THE VIOLATIONS FORMALIZED FOR EXPULSION. $$$

While the career of Angela Merkel fades into the vegetable garden, a bankruptcy framework has been proposed. The procedure is designed to boot out chronic EuroZone debtor nations that have become a burden to the point of raising systemic risk. The process seems to be to placate the Finnish demands for collateral. Instead of outright collateral placed before bond bailouts are granted, perhaps a procedure can be hammered for applicant rejection instead. Several explosive ideas are being proposed which not only reject a common economic government for the EuroZone, thereby slapping Sarkozy across the face, but also to consider creating a bankruptcy procedure to forcefully remove nations from the Euro Monetary Union which do not comply with debt limits laid out in the infamous Stability & Growth Pact, and the budget requirements tied to bailouts. This is a march backward in time to undo the bailout steps, principally the July 22nd Greek bailout. In the weeds lie both Italy and France, exposed more with each passing week. They are not bailout targets, but rather wrecking balls to the EMU, the big banks, and political organization. German opposition groups seek to create a framework to deal with chronic liars of their economic condition and budget effectiveness. See the Zero Hedge article (CLICK HERE).

◄$$$ TRICHET HAS FINALLY BEEN CONFRONTED WITH A D-MARK CURRENCY RESTORATION. HE SHOWED CONTEMPT, SEEKING PRAISE FOR HIS TENURE INSTEAD. THE OUTCOME OF HIS EIGHT YEARS IS TOTAL RUIN OF EUROPE, IN A GLARING DISPLAY OF COMPETING CURRENCY WAR DESTRUCTION TO ALL PARTIES. HIS ITALIAN SUCCESSOR IS FROM GOLDMAN SACHS, A RIPE COMBINATION FOR EXTENDING THE BANK BAILOUTS FOR ITALIAN GOVT BONDS. $$$

Gestures speak volumes. Indignant body language is evident. Finally the topic of Germany reverting to the historically strong Deutsche Mark currency has been raised in the open, even tossed like cold water in Trichet's face. The Euro Central Bank President Jean-Claude Trichet made angry frustrated gestures during a news conference at the headquarters in Frankfurt. The D-Mark remains strong in the minds of Europeans, a currency that never should have been discarded or replaced. But a supra-national plan could not be blocked. The D-Mark was a casualty of banker ambition. Germany, which had brought its Eastern brothers into the fold a decade earlier, was compelled to finance Southern Socialism with its bizarre mix of inefficiency, lousy work ethic, preference for merriment, deep corruption, and inability to collect taxes. Trichet will step down from his throne, but amidst frustration and deep friction marred by resignations and open battles with the Bundesbank. His 8-year term ends October 31st, to be replaced by Mario Draghi of Italy, who carries the Goldman Sachs pedigree. He should favor Italy in the next bailout chapters. Trichet lost his composure with a reporter who asked whether Germany should abandon the Euro and return to the D-Mark as the European debt crisis continues without end. Instead, Trichet in Orwellian style shot back, "I would like very much to hear the congratulations for an institution which has delivered price stability in Germany for almost 13 years. It is not by chance we have delivered price stability. We do our job, it is not an easy job." What deception and folly.

The EuroZone Economy has worse price inflation that the USEconomy, and its banks are on the verge of collapse, as not even political stability is visible. The inflation praise is off the mark, as cookies cost $4 in Spain, and McDonalds hamburger combo meals are $12 in Europe. Prices have risen enormously. Globalization has ripped industry (small & large) and moved it to China. The EuroZone Economy is subject to the swings in unstable currencies. The mammoth USDollar printing operation has put a cost strain on Europe at a time when their non-uniform sovereign bonds pull apart and expose a fractured union financially. The Euro Central Bank has attempted to separate from the reckless USFed policy but has exacerbated the EuroZone problems. The rate hike earlier this year put extra strain on Southern Europe, forcing mortgage rate hikes, more bank strain, and inducing Germany to break off the common Euro currency. Anyone who has traveled to Europe recently is well aware of a tremendous rise in all prices, but that excludes the great majority of Americans, only 15% of whom own a passport.

 

Trichet has acted as chief defender to the Euro common currency and the union itself. He has spent much of the last two years shuttling back and forth between Frankfurt and national capitals for private meetings with bankers and politicians in a series of important but futile summits. Trichet is responsible for two major monetary decisions. In 2009, he followed the USFed and its reckless decision to cut interest rates, moving toward the 0% policy (ZIRP), exactly as the Jackass forecasted at the time. He did so unwillingly. Then he hiked the ECB interest rate several months ago in an attempt to put distance between the central bank and the American destruction of capital. Instead, Trichet and the Euro Central Bank fell victim to the Competing Currency War, a primary victim in a war that destroys all nations, both allies to the ZIRP and opponents whose currencies suffer from appreciation. Trichet presided over a EuroCB that took the controversial unprecedented step of buying the bonds of countries including Ireland, Spain, and Italy when their bond markets froze up. The purchases were technically illegal. Some claim that grand move lowered their bond yields into normalcy, but it wrecked the ECB balance sheet laden with toxic PIIGS bonds. As the crisis increased and banker in-fighting ensued, Trichet has criticized governments for not doing enough.

The litmus test still lies in Germany, where 37% voted that  the country would be better off if it reintroduced the D-Mark, according to an Emnid survey posted on August 18th. A similar 37% proportion said Germany is better off with the Euro, while another 19% believe a return to the D-Mark would change nothing. The EuroCB left its benchmark interest rate unchanged at 1.5% last week. But more importantly, Trichet signaled an official rate cut with his language, a white flag of surrender in the Competing Currency War. The Euro exchange rate has come down hard since the policy statement. The higher Euro currency has harmed German Economy led by exporters for two years. There is no victory ever in such a fiat war on money. It is clear who the fiat beauty queen is, GOLD peering from the side of the stage.

USECONOMY RETREATS AGAIN

◄$$$ ALMOST NO CHANGE IS EVIDENT IN NEGATIVE EQUITY HOMEOWNER STATISTICS. AN AMERICAN TRAGEDY CONTINUES UNABATED WITHOUT SOLUTION. NO ATTEMPT AT RELIEF IS BEING MADE, SINCE DOING SO WOULD TOPPLE THE ALREADY INSOLVENT BIG BANKS. BANKS RECEIVE WELFARE, BUT THE PEOPLE NOTHING. NO RECOVERY IS REMOTELY POSSIBLE IN THE USECONOMY UNTIL THE CONDITION IS REMEDIED. $$$

CoreLogic released 2Q2011 data showing that 10.9 million homes, equal to 22.5% of all residential properties, have a mortgage in negative equity. The underwater figure is down from 22.7% in the first quarter. An additional 2.4 million borrowers had less than 5% equity, referred to as near-negative equity, in the second quarter. This graph shows the distribution of negative equity, a horrendous display. Notice the biggest category is the worst category, over 25% underwater, a glaring bar. These homeowner are at acute risk to lose their homes. Almost 10% of homeowners with mortgages have more than 25% negative equity. Any trend down is due to homes lost in foreclosure, no longer accounted for since no mortgage. So progress is non-existent, even though suggested as apparent. See the Calculated Risk article (CLICK HERE). Any giant national program to reduce home loan balances would cost at least $2 trillion, debase the USDollar further, and push the Gold price past the $2000 mark.

◄$$$ THE AUGUST JOBS REPORT PUKED. MORE USGOVT STIMULUS WILL BE URGENTLY ENLISTED. NOTICE THE OFFICIAL JOBLESS RATE FALLING SLIGHTLY BUT THE REALISTIC MEASURE RISING. PEOPLE ARE FALLING OFF THE OFFICIAL COUNTS, THEIR BENEFITS EXHAUSTED (SEEN AS PROGRESS). $$$

The USGovt non-farm payrolls report was miserable. It showed exactly zero jobs produced on a net basis. The implication of an exact zero figure screams of deception and faulty statistical methods, since a convenient number. The Birth-Death Model, that wondrous fudge tool, brought in 87 thousand mythical jobs. So my conjecture is that the actual final count was in the minus 80k to 90k range, a level that motivated a doctored final figure of zero within the overall doctored procedures. The B-D Model is designed to measure small business job creation, a sector that is reeling from the lunatic ObamaCare regulations. The August U.6 unemployment rate notched higher to a seasonally-adjusted 16.2%, from 16.1% in July. It serves as the broadest unemployment rate published by the Bureau of Labor Statistics. Included are people clinging to the labor force at the margin, even short-term discouraged workers and those employed part-time since unable to find a full-time job. The Clinton Admin is responsible for altering the jobless statistic, in order to present a more favorable figure. They essentially killed the discouraged workers in the statistical data crunch, who had given up looking for a job.

Notice the official U.3 jobless rate (red) coming down slightly, as does the broader U.6 (gray), but the most accurate comprehensive SGS rate (blue) is rising. The Shadow Govt Statistics folks count people who are unemployed, a simple concept not muddied by politics, economics, or motive to deceive. The SGS estimate puts back in the equation the long-term discouraged workers, since part of the labor force. The estimated SGS-Alternate Unemployment Measure notched higher to 22.8% in August, up from 22.7% in July. Many workers are falling in the cracks, with exhausted insurance benefits. The U.3 is nothing more than a state jobless insurance count. The USGovt response to economic recession will be to abandon budget cuts and austerity. With deeply embraced expedience, they will blow forward with stimulus plans. If half the programs make any sense, that would be a success. The plan will be to build in stimulus in the short-term but budget cuts in the long-term. The problem is that the forward projections will be nonsense. Much larger USGovt deficits for year 2012 are assured, like night following day. Expect a whopping $2 trillion official budget deficit next year. The impact on the USDollar and Euro currencies might be muted. But the impact on the Gold price will be clear. The uniformly debased monetary system will send the Gold price past the $2000 mark.

◄$$$ SENTIMENT LEADS CONSUMPTION. FURTHERMORE, SENTIMENT HAS BEEN DOMINATED BY STOCK MARKET MOVEMENT, A RECENT SEVERE DAMPER FROM THE RENEWED RASH OF WORRY. THE USECONOMIC RECESSION WILL BE PLAIN AS DAY BEFORE THE YEAREND. $$$

◄$$$ ANNOUNCED LARGE COPORATION JOB CUTS ROSE SHARPLY IN AUGUST. THE LEADERS WERE GOVERNMENT, FINANCE, AND RETAIL. THESE SECTORS SERVE AS THE TRUEST SYMBOLS OF A DEEPLY DISTORTED USECONOMY WITH BLOATED BUREAUCRACIES, OVERSIZED FINANCIAL SECTOR, AND CONSUMPTION THAT EATS CAPITAL. $$$

Employers at large US corporations announced more job cuts in August compared to a year ago, a signal of no progress in the labor market in over two years. Planned large site firings climbed 47% from August 2010 to 51,114, according to Challenger, Gray & Christmas. The announcements were led by reductions at government agencies and the financial industry. Job cuts in federal, state, and local governments are expected to ramp up considerably. Budgets are being cut all over. Expect the USGovt to reverse course and order more stimulus spending, but not states and locals. Government agencies led the August firings with 18,426 job cuts in announcements, followed by 8094 in finance and 5901 in the retail industry. Bank of America, the biggest US bank, will eliminate 3500 jobs in the third quarter. See the Bloomberg article (CLICK HERE).

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