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

* Miscellaneous Morsels
* Internal Symptoms of Malfunction
* USTreasury Bubble at Risk
* Dead Banks Stumbling
* Housing & Mortgage Millstone
* USEconomy Faces the Abyss


HAT TRICK LETTER
Issue #78
Jim Willie CB, 
“the Golden Jackass”
15 September 2010

"The wondrous call for public service in government has yielded by expedience and opportunity to the advantages from syndicate exploit and membership. What is needed is a magnifying glass to direct sunlight on the insects that occupy the syndicate control rooms. Let them be destroyed by the extreme heat in focus from pure solar power." ~ the Jackass

"The main economic policy of the Administrations has been subsidies for capital, and not for labor." ~ Lawrence Lindsey (and subsidies for a wrecked banking system, including bond fraud, and for a series of Black Holes)

"To this day, economists do not fully understand why firms cut production as much as they did or why they cut labor so much more than they normally would. Almost all analysts were surprised by the violent reaction." ~ Christina Romer (exiting from White House Council, but one of the more enlightened)

"The Fed is in a very difficult position. Inflation is too low, and the Fed is not doing a good job with that... The USEconomy lacks sufficient industry right now, and something must be done." ~ Frederic Mishkin (clueless court jester in economist clown suit)

MISCELLANEOUS MORSELS

◄$$$ THE NEXT G-20 MEETING WILL TAKE PLACE IN SOUTH KOREA. THE EMERGING NATIONS (B.R.I.C.) WISH TO PRESENT A UNIFIED FRONT. HIGH ON THE AGENDA IS THE UNSUITABLE USDOLLAR AS GLOBAL RESERVE CURRENCY. THE GROUP PROVIDES STRONG GOLD DEMAND AND IS RELENTLESS IN UNSEATING THE KING DOLLAR. $$$

Asia will serve as host to the next G-20 Meeting, the extended group of developed and developing nations this November. Soeul will be the site of the meeting in South Korea. Diverse discussions and preparations are taking place for this meeting, especially by the BRIC nations of Brazil, Russia, India, and China. They steadily meet among themselves in order try to present a uniform position against the debt ridden aristocratic nations which are slowly yielding power. The BRIC nations wish to address as an agenda item the chaos from unstable and fluctuating currencies. They are especially concerned about the USDollar, broken in its reserve currency role. The nemesis of the USDollar is clearly Gold, but the weak face of the US$ is the USTreasury Bond. The greatest global demand for physical Gold comes from India and China. In contrast, the greatest paper claims to Gold and false synthetic demand for gold in Exchange Traded Funds, comes from the West nations. The industrial nation relationship with gold is constructed from pure corruption. The urgent need for a better global reserve denominator has persisted. It is accompanied by persistent suggestions that the USDollar is no longer fit for its official reserve role. The G-20 is the constant rodent biting the Western Elite at the feet, knees, and legs. In time, the rodents will bring down Uncle Sam to the ground, where the emaciated old man will meet his fate.

◄$$$ COLLEGE STUDENTS ARE REALIZING DEEP DEBT BURDENS BEFORE ENTRY INTO THE JOB MARKET. THEY ARE BANKRUPT OUT OF THE EDUCATIONAL GATE. PREPARE FOR MAJOR CHANGES COMING WHERE YOUNG PEOPLE ESCHEW COLLEGE EDUCATIONS, OFFSET BY THE SHUTDOWN OF MANY UNIVERSITIES FROM HEAVY OPERATIONAL LOSSES. WITNESS ONE MORE FACET TO THE MARCH TO THE THIRD WORLD. $$$

Graduating students are drowning in debt right out of the gate. US college students find themselves helpless to pay off educational costs. They march on the Road to Debt Perdition before paid salary checks. Over $830 billion is owed by US college students, with an astonishing $3000 added every second on the clock. For decades, the main financial baggage for Americans was credit card debt. Behold a shift, as college student debt has taken the lead #1 category. Students graduating in in the last few years have faced the worst job market in a generation. The majority will be unable to pay off the record debt. They will be crippled economic participants, unable to own a home. They will be forced to declare bankruptcy in droves. They will join the disenfranchised in the USEconomy who have lost jobs, lost homes, lost pensions, and lost hope. Despair is a billboard trait of the Third World, a place the United States is destined. Most universities possess endowments. Despite their funds, some will shut down from heavy operational losses. Some state supported schools will shut down from lack of funding. Lower tier schools without endowments will succumb and shut down. A sad chapter in American educational history is soon to turn its unfortunate pages.

◄$$$ CALIFORNIA ISSUES I.O.U.  COUPONS FOR LIMITED USAGE AS LEGAL TENDER. MANY STATE COSTS WILL BE COVERED BY THE COUPON PAYOUTS. SO FAR, ONLY STATE FEES AND TAXES CAN BE PAID WITH THE SAME COUPONS. BUT CHANGES MIGHT COME TO EXPAND THEIR USAGE AS LEGAL TENDER. THE BUDGET IS BLOCKED BY A CONSTANT IMPASSE, WHILE DEFAULT APPROACHES. $$$

The desperately busted state of California will issue IOU coupons for the second straight year, and the third time in recent years. They have solved nothing, reformed nothing, and learned nothing. The Golden State is once more at the gate of bankruptcy. Its insolvent condition forces continued but reduced operations without a budget. The legislature passed a measure which permits payment of state bills in IOU coupons for everything from supplies to contracted services and health care costs. In so doing, it preserves cash to make payments to creditors. The state is well along on the road to serfdom. On the other side of the table is redeemability. The same IOU coupons can be legally used to pay for fees and taxes owed to the government in Sacramento. The warrants must be issued. The bill passed the Senate unanimously, with a priviso that requires all state agencies to accept registered warrants in lieu of payment. The Governor office might start handing out warrants to pay some bills before October to conserve cash, Controller John Chiang claims. As is the established custom for the largest of state's absurd leadership, no resolution has come to erase a $19 billion deficit that blocks a budget. It still requires a two-thirds approval for any decisions. See the Zero Hedge article (CLICK HERE).

◄$$$ THE UNIV OF CALIFORNIA SYSTEM IS GROSSLY UNDERFUNDED IN ITS PENSIONS. IT SUFFERS UNDER THE WEIGHT OF A $20 BILLION SHORTFALL. THE NEWS COMES AFTER BERKELEY REJOICED ABOUT ITS SOUND FINANCES. IF ONLY PARTICIPANTS HAD PAID INTO THE MISGUIDED SYSTEM, THE FUND WOULD BE MORE FIRM. $$$

Berkeley is the prestigious flagship university of the Univ California system. Its financial strain has caused cutbacks and student outrage. According to its Chancellor, the school is back on track, thanks to hiked tuition and an increase in private donations. The true condition of the UC system requires a closer look. The Los Angeles Times cited a report that says the UC pension system faces a $20 billion shortfall. A lunatic decision years back bears much of the blame. The LA Times wrote, "Much of the problem with the retirement fund stems from a decision 20 years ago, when UC and its employees stopped paying into the retirement system because it was believed to be overfunded, officials said. The university and employees resumed payments this year, but concerns about the possibility of unfunded pensions and post-retirement health care continue, according to the report." Certain proposals will generate a small firestorm if implemented. The recommendations include raising the amount that employees and the university must contribute to pensions over the next two years, from the current 2% and 4% of paychecks, to 5% and 10% respectively. Other suggested measures call for new employees not to be permitted retirement with pension until they reach the age of 55 years, up from the current 50 age. They might receive smaller pensions based on their fewer years of service than current employees. See the Business Insider article (CLICK HERE). No end to official bad judgment and mismangement, which leads to severe adjustments.

INTERNAL SYMPTOMS OF MALFUNCTION

◄$$$ WITNESS THE FAILURE OF AMERICAN ECONOMISTS, AND GRADUAL REALIZATION OF SYSTEMIC FAILURE WITH HEAD NODS IN IMPORTANT CIRCLES. CHRISTINA ROMER SERVES UP A DISMAL VIEWPOINT ON THE USECONOMY, UPON HER WHITE HOUSE EXIT. FAILED POLICY IS DEEPLY ENTRENCHED, AS ARE HERESY AND STUPIDITY. THE SMARTEST GUYS IN THE ROOM DO NOT COMPREHEND THE SYSTEMIC FAILURE. $$$

The debt cancer and fiat blindness has resulted in grand infiltration to the economic brain trust, now in culmination climax. Exiting from the White House Council of Economic Advisors, offering a speech at her farewell dinner, Christina Romer admitted the failures in a concise honest manner. She gave fresh air of honesty, but a tragic glimpse. Four grand economist failures were pointed out. 1) They had no idea how bad the economic breakdown would be. 2) They still do not understand exactly why it was so bad. 3) The response to the crisis was inadequate. 4) And implicitly, they have no idea how to fix the situation. Her speech was replete with warnings and frightening descriptions. They talked of the risk of seeing high unemployment permanent amidst an economic nightmare. Witness the end days of failed application of Keynesian, hardly what John Maynard K prescribed. Debt was never paid down during good times, and an annual warmonger chaser aggravated deficits. After a while, good times never occurred when debt became saturated. A thorough perusal of Austrian economics is the medicine to cleanse the murky economist brain stems. They do not comprehend money, debt, income, or industry. The dinner itself was moved to a much smaller room, since poorly attended. Nobody cared. See the Washington Post article (CLICK HERE).

Romer is not a Wall Street connected Made (wo)Man. She is also a lightweight economist. After hearing her a dozen times, it is shocking to me that she comes from hallowed Berkeley. The corps of American economists is utterly pathetic in skill, insight, and acumen, a big gaggle of lightweights led by intelligent sounding bank leader charlatans better described as quack heretics sharing the same blinds spots of money, debt, income, and industry. Romer was ousted since she wanted some good economic policies, and thought that might have something to do with more effective tax and regulatory policy. Her bosses wanted continued bank welfare, fraud coverup, and allowance for grand liquidity channels that enabled impaired bond redemption. They were pre-occupied by holding down the sinking ship with market controls. She did not fit in, reminiscent of the departure for Paul O'Neill at Treasury in 2003. He called it Show Business, but it is more like Syndicate Finance. Events served as constant distraction to the public while managing Syndicate interests under the USGovt roof. USFed chief economist Alan Krueger just last week actually made a vapid statement that job growth has been greater in this recovery than in past cycles. How false and clueless! On the same day Treasury Secy Geithner made his usual harping criticism against China for not doing enough on currency reform. These are deceptions and distractions in constant usage, as some sort of empty proof that the men show up at their offices each day.


Romer is more sincere, unlike her clan, to her credit. She dropped out from being ignored, and probably had a few decent ideas for remedy. However, like her clan, she is totally clueless how to right the Fascist Economic Ship floating in acidic seas of debt where industrial icebergs render deep damage below the water level. We are seeing the brain trust slowly resign intellectually to systemic failure. One can almost be led to vomit every time a good tax concept is proposed, when clumsy financial analysts just assume that it translates into higher deficits. What we have seen is higher taxes result in lower tax revenues consistently for two decades, unnoticed!! The economists have NO IDEA how lower taxes, if correctly applied, results in a gigantic elastic response of powerful growth after a brief introductory period that should be accompanied by advertised policy. As said several dozen times, the US economists are the dead worst in the world, and have lost their chapter on capitalism from the basic textbook.

In the last two decades, that chapter was swapped for a fascist chapter that they so fully endorse. The US economists followed the errant bankers instead, and fell in love with an addendum chapter on leveraged risk offsets. Since then they lost their way completely and led the nation to ruin. Lastly, my image of any Berkeley professor is one of a powerhouse mental figure. Romer is not such an intellectual force. These US economists are lightweights, including at universities, the breeding ground for mediocrity and heresy. Collectively, they do NOT comprehend the requirements of sound money, the heightened risk of heavy debt burdens, the bonafide sources of legitimate income, or the extreme importance of industry. They all preach about putting money in people's hands (regardless of source), keeping liquidity flowing (even into dead banks), promoting confidence (instead of industry). They are incompetent and the agents of systemic failure. Worst of all, the price of money has been controlled for so long that now it is free, but not wanted anyway. The marginal result of additional debt, even at low cost, is negative. The broken series of asset bubbles have produced a charred ruin called the USEconomy. It will cave in upon itself.

Friend and colleague Aaron Krowne of Mortgage Lender Implode offered a good critique. He said, "Even better we need spending cuts, truly trimming the fat in Washington, bringing in independent audits of the entire government budget (which would highlight 50-75% waste), as well as making military spending merely the largest in the world, not larger than the entire rest of the world combined. [See also] the Mini Depression of 1921 under Harding, who cut government and was rewarded with a major economic bounceback. For this he is loathed by historians." Such guidelines are dismissed right away for their wisdom and common sense.

Catherine Fitts makes a great point in critique about a reverse momentum based in aversion. She said, "When a lot of money has a negative return on investment, there is never enough money. The last expenditure has created the need for more money. It is like an addiction to poison. However, if the investment is engineered to a positive return on investment, then there is plenty of money. The last expenditure creates more money. The only problem is millions of people addicted to negative returns on investment. That is a cultural problem, a political problem, not an economic problem. In theory, if we reengineered to a positive return on investment, the wealth potential is immense." She describes a Black Hole phenomenon that continually sucks capital. Structural changes, effective incentives, and government enticements are needed. But these do not serve the Syndicate in charge. Change would displace them from power and expose their criminal activity. They are bleeding the host nation into ruin.

◄$$$ WITNESS THE FAILED AMERICAN FINANCIAL MARKETS. JIM RICKARDS DESCRIBES HOW THE FINANCIAL MARKETS ARE DISTORTED ALMOST UNIFORMLY. THE VITAL FUNCTION PRICE DISCOVERY HAS VANISHED. THE USECONOMY HAS AN ENGRAINED CANCER IN BOTH THE CREDIT ENGINE AND CAPITAL FORMATION MARKET DYNAMIC. THE RUINED PRICE MECHANISMS HALT THE PROPER CAPITAL ALLOCATION PROCESS. ECONOMIC FAILURE FOLLOWS. $$$

Jim Rickards from Omnis is a brilliant man with one foot in his past deeply lodged in the Syndicate control rooms. See his consultant role at LongTerm Capital Mgmt, which had a hidden gold angle. Rickards makes some great points that strike at the core of the dysfunction of the US financial structure, not its foundation, but its operational flows. He ardently stressed how price discovery is not functioning. Note the vast number of USGovt intervention programs which have distorted almost every market, typical of Politburo councils like seen in the former Soviet Union. He cleverly stated that if individuals interfere with markets, it is called manipulation, but when the USGovt does it, they call it policy. He keenly called excess cash on the sidelines a horrible sign, since it is afraid of commitment to projects, unwilling to engage in large transactions, not achieving business potential. The cash is evidence of price mechanisms gone awry, halting capital commitment, since the financial markets are destroyed. A pervasive cloud runs covers the system like acid rain, inducing a systemic failure. A good analogy is that the Body Economic cannot use its capitalist muscle fibers to lift capital and decide to pay for it properly. Muscle function fail to move limbs and internal processes. Capital and equipment are not allocated effectively. Thus businesses do not function right, jobs are not provided right, products are not delivered right, and funds do not flow right. The Body Economic eventually suffers a death experience from a queer malnutrition. The markets are prone to catastrophic collapse from the frozen interior workings, in his words. The fallout wrecks the economy in turn, from an irreversible rot.

Rickards criticized the stock market as an abused neglected playground. The only remaining elements in the US stock market are robots and indexers. The robots use algorithms and depend upon high frequency trading. The indexers have developed categories of stock groups, eliminating the decision process, and thus have enabled better control mechanisms for the power merchants. The stock market is an unstable mountainside in his words, in no way reflecting the fundamentals. The Flash Crash was a warning served, but largely ignored.

The next Quantitative Easing launch has spawned a big debate, but it is not yet announced. The clear impetus for QE2 is the absence of a USEconomic recovery. He suggested the US leaders should permit price deflation in assets, since an inevitable outcome. The alternative to be seen with certainty is stagnation, a wise discernment. The QE2 device is all the USFed has left in its toolbag, but it will be launched after the November US eclections, he expects. However, QE2 will accomplish nothing, bring about little if any recovery, except extreme stagnation. The QE2 itself prevents the market clearing function and results in huge growing supply, as a direct result of pricing mechanisms being deeply distorted. Rickards believes QE2 will fail, calling it an empty gun chamber. My call is that a series of powerful crises will be the bitter fruit of QE2. The risk of systemic failure will set in.

Price inflation is coming soon in his opinion, as big tectonic plates are shifting. It could be hyper-inflation under certain conditions. Contemplate the theorem: Money Supply times Velocity equals GDP times Price. Rickards openly wondered what might cause Velocity to rise significantly. Price inflation will arise in response only when Velocity rises, but for now it is very subdued. The Money Supply is extraordinarily high, raising risk. He has no confidence that the USFed can dial down Money Supply growth in the nick of time when required. It must urgently respond with a downshift in gear quickly if Velocity suddenly picks up. He points out how behavior changes hold the key oftentimes. Behavior triggers would make for an important change. Like consumers spending money instead of saving it (he assumes they have money). Like creditors backing off of USTreasury Bond purchases, and lending instead. Like excessive printing of money in official monetization and hidden actions, instead of permitting liquidation. Altered dynamics would spur sudden profound change.

Rickards saved his most controversial concept until last, a USDollar devaluation, but a backdoor type. He endorsed a US$ devaluation versus Gold, which means permission of a much higher Gold price. He advises gold investors not to wait for a price pullback before buying. He calls a $15 to 20 bargain irrelevant when compared to what is coming with higher prices. He mentioned that China would not play the USGovt game, to reduce the US$ valuation, a confirmation made by a reliable source of mine. The only answer is a severe US$ devaluation relative to Gold. He suggested a starting point of $1500 for the Gold price, which is a 20% bump from the $1250 mark. He believes Americans are afraid to spend, but a higher Gold price would result in more activity. He expects the gold sales would free up money, along with other investment hedges to protect capital, now locked in gold investments. Rickards believes the Gold price might stabilize near the destination $2000 price. He calls the US$ devaluation the Golden Bullet. Implicit is the claimed return to solvency from banks, except they own no gold. See the King World News interview (CLICK HERE).

Some critique is essential. My personal view is that Eric King serves up an all-star cast of interview subjects, but gives a shallow passive interview, unfortunately permitting nice opportunities to be lost for discussion. He is a marketing expert who has a decent but not thorough grip on the complexity of the complicated interwoven dynamics. King offered zero followup on several important points. Here are some points to consider. A USDollar devaluation using the Gold window would kill the Big Four Banks, a huge impact with severe ripple effects. We do not know the view of Rickards on this matter. A US$ devaluation via Gold would not do a single iota to help the USEconomy vis-a-vis homeowners, since the great majority do not own gold and are actually broke. Millions of households are insolvent, hardly clinging to their gold for a higher price to sell. A US$ devaluation via Gold would not free up much of any bank reserves, since the banks do not own gold, but rather own mountains of bad debt in their portfolios. A higher Gold price, starting at $1500 or even $2000, would accomplish little to the millions of Americans living in homes with under-water mortgages, and would not encourage hundreds of thousands of American run businesses to initiate business investment programs that include vast hiring. The 2% or 3% of Americans who own gold might surely sell some. But the end result:  NO CHANGE TO THE ECONOMIC STAGNATION, just a topple of big banks from an unwanted rear guard attack. Eric King left the entire futility of the Golden Bullet without challenge or discussed consequence. His desire to permit the guest to speak hides his ability to interact effectively and to think on his feet. His questions are shallow open doors.

Rickards mentioned the absence of proper price mechanisms, and the lethal impact to capital allocation. In my view, the United States should start liquidating the Big Banks. Rickards did not mention the need to liquidate impaired assets in banks that clog the system as a twin requirement parallel to the price discovery effect. The credit engines are suffering from insolvency and constipation. The USGovt is controlled by the Big Banks, and they will never order their own liquidation. The Golden Bullet of US$ Devaluation would have some meaning and opportunity only if the US banking system would permitted to discharge its impaired assets. The bullet would surely cause an impact, much like a bullet in the heart of the monetary system controlled by means of the Gold price. It is not so much a Golden Bullet as a Golden Earthquake that would register 10 on the Richter scale. My view is that a $1500 price will be forced by the market, then $2000, without action to the Economic & Banker Priesthood, which Rickards seems still to hold in awe with respect. They pay his consulting fees still. He should know a great deal about gold and its important role, since his LTCM role involved falsified denials as legal affadavits against the Gold Anti-Trust Action group. My belief is that Rickards is still an agent for the gold cartel, but an insightful analyst who insists on imparting some wisdom that exposes the system as broken. He helped to break it. He helped to keep the gold cartel in power. But he is a smart guy worth listening to, and learning from. Beware his comments on gold though, since twisted and motivated.

◄$$$ WITNESS THE EXODUS OF MONEY, IN RESPONSE TO DIVERSE ILL WINDS. ANOTHER $5.4 BILLION WAS REMOVED FROM STOCK FUNDS INSIDE THE UNITED STATES. THE STRING OF WEEKS IN EXODUS CONTINUES. WORSE, ON A SINGLE WEEK, $7.1 BILLION WAS REMOVED FROM GLOBAL STOCK FUNDS. STOCK OUTFLOWS FROM THE USMARKETS CONTINUED FOR THE 17TH STRAIGHT WEEK. MONEY IS FLEEING FROM THE TOXIC BROKEN TINKERED CRIME RIDDEN FINANCIAL CENTERS. $$$

Investors withdrew a net $7.1 billion from equity funds tracked worldwide in the week ending August 25th, according to tracker EPFR Global. They put $5.2 billion into bond funds of many stripes. The United States and Europe are losing momentum. A net $5.4 billion was redeemed from US stock funds. Inflows into emerging nation stock markets were the lowest in 13 weeks, as their bond funds took in $1 billion. US bond funds drew $2.5 billion. European stock funds also posted net outflows, taking losses this calendar year to $15.7 billion. Inflows into emerging market bond funds continued for a 13th consecutive week, taking the annual total beyond 300% of the annual record set in 2005. The previous high in 2005 high was $9.7 billion. Global bond funds are in position to surpass the record inflow of $47 billion set in 2009. Great shifts in flow of funds is occurring. See the Bloomberg article (CLICK HERE).

The 17th consecutive weekly stock fund outflow was recorded in the United States. This is a major exodus, not reported, certainly on CNBC. Stock fund redemptions are actually accelerating. ICI reports $5.4 billion in stock fund outflows, fully 50% more than the previous week. Year to date outflows have now hit $54 billion in 2010, as ever more capital is going into fixed income instruments. The investment community is chasing bonds, the next bubble. The experts are calling them safer. In 2005 and 2006, mortgage bonds were considered safe. See the Zero Hedge article (CLICK HERE). The arithmetic is off on the 50%, so refer to the above EPFR data for clarity.

USTREASURY BUBBLE AT RISK

◄$$$ FORTUNE MAGAZINE BOLDLY STATES THAT USGOVT DEBT IS JUNK, JUST LIKE GREEK GOVT DEBT. RECOGNITION IS HAPPENING GRADUALLY. THE USTREASURY DEBT MOVES DOWN A TRAGIC PATH TOWARD DEFAULT, EVEN THOUGH BESTOWED A STERLING CREDIT RATING. $$$

Meet the Junkyard of USGovt debt. The United States compares equally to the wrecked condition of Greece. In past Hat Trick Letter reports, a chart was presented that displayed the PIGS nations of Europe and let the Western nations be placed in competition in two respects, annual debt and total debt. The US was in the same locus as PIGS wrecks. The Greek Govt debt is justifiably rated as junk. The first statistic is the annual deficit as a percentage of national GDP. It stands for Greece at 13.6% versus the US at 10.6% behind. Next comes a comparison based on total funded government debt as a percentage of GDP. Greece was higher at 115.1% against 86.5% for the US total. But when the debt of the USGovt Black Hole extension of Fannie Mae, Freddie Mac, and the smaller Govt Sponsored Entities is included in the total, the US figure soars to 121.6%, more in tune with reality. The GSEs are indeed completely owned by the USGovt, under full adoption, heavy cost, deep impact, and unrivaled brilliant management. The third comparison is debt as a percentage of government revenue. The US fares worse at 358.1% against a total of 312.2% for Greece. The USEconomic recession will easily expose the USTreasury debt as deserving of junk status. Without any rational dispute, USGovt debt should be downgraded a few notches. Its low bond yields are not testimony to global acceptance of its value, but rather of massive monetization and controlled price, to prevent an implosion. The pitiful condition of the USEconomy diverts stock funds to bond funds also. The USGovt deficits and consequent USTreasury Bond supply is huge, horrendous, and deserving of Third World recognition and comparison. In my view, Greece is better off. They have no military nor security agency that destroys their nation from within. See the CNN Money article entitled "Should US Government Debt Be Rated Junk?" (CLICK HERE).

◄$$$ RED VERSUS BLUE PARTY IS A DISTRACTION. THE FOCUS SHOULD BE ON DEBT ACCELERATION, ENDLESS WAR, AND SYNDICATE PILFERAGE. WHEN NEW LEADERS AND THEIR CABINET OFFICERS ARE SELECTED, ONLY ONE QUESTION SHOULD ARISE. $$$

That question pertains to loyalty, whether to the People or to the Syndicate. Is the leader or official a member of the powerful Syndicate deeply rooted and involved in bank and monetary control along with narcotics trafficking? The answer is YES for Papa Bush, Bill Clinton, George Bush II, and Barack Obama. In fact, since the October 1981 shooting of Ronald Reagan, the long line of narco presidencies has endured and reigned. See the chart of rising USGovt expenditures and economic growth, not much difference in color tone. Due to selection of a Goldman Sachs preppie in Tim Geithner at Treasury and to continued service of Robert Gates at Defense, Obama continued the Syndicate. Read my lips: no change. Worse still, the newest Supreme Court justice in Elena Kagan represents interests of Goldman Sachs. She is certain to be a key vote that prevents any independent audit of the US Federal Reserve. In a past decision, she reversed an order that GSax disclose information on mortgage asset sales amidst overtones of bond fraud. To say the Syndicate is entrenched is a gross under-statement. They have built a Syndicate upon war, naroctics, and banking that has strangled, then bankrupted the nation. They will kill the host before abandoning power. Its leaders in my view are Papa Bush, Bill Clinton, Robert Rubin, Hank Paulson, and Jamie Dimon. None will go, or all will go. My personal hope is for an eventual Nuremberg trial for global banker crimes.

◄$$$ THE TERMITE RIDDEN HOUSE IS REALLY A BIG ASSET BUBBLE WAITING TO POP. THE USTREASURYS ARE DESTINED FOR RUIN. POWERFUL FORCES ARE AT WORK TO EXPAND THE BUBBLE FURTHER, TO ISOLATE IT UNDER THE MICROSCOPE OF ATTENTION, AND THEN TO POP IT IN A WEIMAR MOMENT. LIRA DESCRIBES A POSSIBLE SCENARIO FOR THE USTREASURY BUBBLE BUST. IT WILL BE DRIVEN BY A USFED PERCEPTION OF A RUN AGAINST USTREASURYS, WHICH ACTUALLY ENCOURAGES THAN RUN. THEIR SUPPORT BACKSTOP WILL OPEN THE DOOR TO THE SAME BIG BANKS THAT COLLUDE WITH THE USGOVT & USFED. WHAT GUARANTEES THE PATHOGENESIS IS FAILURE AND THE DEEP USGOVT INVESTMENT IN FAILURE. $$$

Gonzalo Lira is an independent writer, analyst, and filmmaker. He has put forth a profound but breezy and readable description of the USTreasury asset bubble in colorful prose. He expects a panic to come that results in the bust of the bubble. The manifestation will be a flight to safety in hard assets and physical commodities, triggering a massive hyper-inflation right away, killing the USDollar dead. The process is well along. He anticipates what he calls a Moment of Clarity will occur inevitably, unavoidably. Like a termite riddled house, no one can predict when the house will collapse, but that breakdown and failure is a certainty. The trigger mechanisms are tied to focused attention to creaks in the damaged planks, which cause a run for the exits, which in turn causes a stampede. The grotesquely impaired landscape of the USEconomy and embedded insolvent financial structure guarantees the eventual stampede and USTreasury bust. The seal of approval of the Bond Bubble is the profound investment in failure. See the Jackass article entitled "Gold & Investment in Failure" on GoldSeek (CLICK HERE). Behold the impact of USGovt deep investment in failure, fraud, and banker welfare, as the monetary system corrodes. The Big Zombie Banks suffer from insolvency and constipation. Actual recovery is not remotely possible without a liquidation of Big Bank assets, but they control the USGovt. Hence much more wasted and pilfered money will erode the monetary pillars further, lift the gold price past $2000, and lead to ruin for the US Federal Reserve, assuring a USTreasury default. The path has been paved, the signposts being written, the death march underway.

The USGovt is indebted to about 100% of GDP, with an annual fiscal deficit of about 10% of GDP. No end is in sight for an altered path. The US Federal Reserve is purchasing USTreasurys, in order to finance the fiscal shortfall, as foreign creditors stay away. They do so directly via the recently unveiled rollover of maturing USAgency Mortgage Bonds (QE-lite) and indirectly via continued grand subsidies of the insolvent, failed, and nationalized entities (Too Big To Fail banks, Fannie Mae, AIG). By pursuing support of aggregate demand in fiscal stimulus and preventing asset erosion by impaired bond subsidies, they hope for a recovery in the USEconomy. Lira concluded, "This recovery is not going to happen. That is the news we have been getting as of late. Amid all this hopeful talk about avoiding a Double Dip, it turns out that we did not avoid a Double Dip. We never really managed to claw our way out of the first dip. No matter all the stimulus, no matter all the alphabet soup liquidity windows over the past two years, the inescapable fact is that the economy has been, and is headed, down. But both the Federal government and the Federal Reserve are hellbent on using the same old tired tools to fix the economy, stimulus on the one hand, liquidity injections on the other." Neither is working, so both will be done with greater force at greater cost. Thus the insanity.

The USEconomy is in no better condition than it was in September 2008, when the collapse began. It is actually worse off, since confidence is shattered from lack of recovery after oversized herculean efforts. Both the USFed and USGovt have exhausted most of their ammunition and dulled most of their tools. The principal accomplishment of the $trillions in stimulus and $trillions more in balance sheet expansion is the profound undermine of USTreasurys, evident as an asset bubble (a dog chasing debt's tail). Lira wrote, "These policies have turned Treasurys into the spit and baling wire of the US financial system. They are literally the only things holding the whole economy together. In other words, Treasurys are now the New & Improved Toxic Asset. Everyone knows that they are overvalued. Everyone knows their yields are absurd. Yet everyone tiptoes around that truth as delicately as if it were a bomb. Which is actually what it is."

Lira describes a sequence of events on how hyper-inflation unfolds. A commodities burp will occur on a quiet day when nerves are calm. Something like a crude oil price jump will jiggle USTreasury yields. Money in big accounts like asset managers, bank portfolios, and hedge funds will shift to crude oil to chase a profit. It will trigger a mirgration that turns into a growing stampede. Programmed trades will push the process. The timing will be more important than the sales volume, right before a reasonably large USTreasury auction. Bernanke and the USFed will respond with bigger USTBond purchases in a counteraction to maintain low yields. This will in turn encourage asset managers to dump even more USTreasurys into USFed waiting arms. The initial dumping of USTreasurys will not be out of fear initially. What begins as an orderly selloff will worsen and accelerate. The USFed will make an error of judgment and will wrongly interpret it as a run on USTreasurys. The USFed will open its liquidity windows, and buy up every USTreasury in sight, precisely so as to maintain asset price stability and calm the markets.

The Too Big To Fail banks will play a crucial part in this game. They were not nationalized even though insolvent, which even Lira calls Zombie Banks. They received the full advantages of nationalization, total liquidity, suspension of accounting and regulatory rules. But they still are permitted act under their own control towards their own best interest. Hence their obscene bonuses, hence their lack of lending into the weakened economy, hence their hoarding of bailout monies, and hence their predatory business practices. In return, the Big Banks have been compelled to purchase the USTreasurys, and thereby disguise the monetization of the fiscal debt. Bank aid has been converted to USTreasury purchases from the back door. The Too Big To Fail (TBTF) banks made a deal with the devil, but they will betray the devil. In time, the Big Banks will break ranks from the USGovt & USFed tagteam of bubble architects. They own a mountain of USTreasurys on their balance sheets. Upon seeing the run on USTreasurys, the Big Banks will add to the panic by leading the rush out of USTreasurys, with full following. They will be what Lira calls the bleeding edge of the wave, acting in their own best interests.

Enter the panic phase of the USTreasury Bond bust. Asset managers observe the massive grab of USTreasurys by the USFed, offsetting the major dumping of them by what Lira calls the American Zombie Banks, in mere days before a significant USTreasury auction. So the asset managers join the exodus and dump their own USTreasurys en masse. Images of Greek Govt debt growing on US soil will come to mind. The USTreasury Bubble has already entered the consciousness of the financial centers. Many analysts and keen investors believe the USFed, the USDept Treasury, and the Big Banks are in deep collusion toward a triangular trade in USTreasury bonds, executing a de-facto Stealth Monetization initiative of historic magnitude. The USGovt issues the debt to finance fiscal deficits, then the Big Banks banks buy the USTreasury securities, using money provided to them by the USFed. So when the USFed accelerates the USTreasury purchases, in response to what they perceive as a bond selloff run, these asset managers will all decide "Time to get out of Dodge, now." Lira does not expect China or Japan will exit USTreasurys and cause the problems associated with bubble psychology. Rather, it will be American and European asset managers who abandon the bubble first. Lira expects a flash panic will hit, much like the Flash Crash of last May, and it will happen in a short span of time, like hours.

A major shift will have marred the landscape. Unlike the event in May, Lira expects no rebound. The symptoms will not be visible to the casual observer, the retail investor, those who watch the evening news and read the major journals. The lack of perception will be due to the USTreasury yields maintained in the face of this selloff, at least initially. The USFed will work feverishly to maintain price stability and will prevent yields from widening. The insiders will notice but the public will not. The insiders will sell USTreasurys in high volume, but the public will hold their bond funds. The most important part of the chapter will be the major transition whereby the bond market will sense the USTBond Bubble is in the process of bursting. Thus the motive for the armada of USGovt & USFed private partners in the Big Banks and hedge funds and other asset managers to sell USTreasurys. As Lira wrote, "Which is precisely why so many will decide to sell into the panic. The Bernanke Backstop will not soothe the markets. Rather, it will make it too tempting not to sell. The first of the asset managers or TBTF banks who are out of Treasurys will look for a place to park their cash, obviously. Where will all this ready cash go? Commodities. By the end of that terrible day, commodites of all stripes, precious and industrial metals, oil, foodstuffs, will shoot the moon. But it will not be because ordinary citizens have lost faith in the dollar, which will happen in the days and weeks ahead. It will happen because once Treasurys are not the sure store of value, where are all those money managers supposed to stick all these dollars?" In my view, the primary destination for the funds in exodus will be gold, and secondarily crude oil, and still not housing. See the Gonzalo Lira articles (CLICK HERE & HERE & HERE). The third article is more an historical discussion, about what hyper-inflation looks like.

◄$$$ THE USGOVT RACKED UP ANOTHER $210 BILLION IN DEBT DURING AUGUST ALONE. THAT IS A $2.5 TRILLION PACE OVER THE FULL YEAR. NEXT FEBRUARY THE TOTAL DEBT WILL EXCEED THE SIZE OF THE USECONOMY. THE USGOVT ISSUED MORE NEW DEBT THAN TAX REVENUE, AS OVER 50% OF THE BUDGET IS DEBT FINANCED. THE BLACK HOLE CONTINUES ITS LETHAL FUNCTION. HYPER-INFLATION WILL FILL THE GAP ON THE PAINFUL PATH TO USTREASURY DEFAULT. $$$

One should not wonder why the USEconomy does not recover. Apart from insolvency laced throughout the entire financial system and structures, the USTreasury Bond bubble is sucking capital from the entire capital markets. The stock market yields to the bond market. During the single month of August, the USGovt deficit swelled by another $210 billion in gross debt, or $225 billion in public debt, net of intra-government holdings. The latest tally on total federal debt is $13.45 trillion, an all time record. Recall the vacant charlatan proclamations of a reduction in the annual federal deficit a year ago. They are empty, as the USGovt added roughly $1.5 trillion in new debt for the third straight year. With 30 days remaining in fiscal year 2010, the USGovt has added $1.54 trillion in the eleven months ended August, and paid out $180 billion in interest expense from the benefit of record low interest rates. The 2010 deficit should approach $1.7 trillion, the highest in three years. No improvement!!

The USTreasury rolled over another $513 billion in short-term TBill debt. The amount persists as large, despite its percentage of total debt having declined steadily from over 30% to around 20% in recent months. Another $106 billion in USTNotes were rolled over. Even a dangerous level of cash on the intra-month balance dropped to a dangerous level under $5 billion. Some extrapolation points to the February 2011 as being a significant pole, whereby the federal debt will be roughly 100% of GDP. Beyond that date, the total USGovt debt / GDP ratio will exceed one. The doorway threshold to the Third World will be surely breached with giant steps.

In the first eleven months of fiscal 2010, the USGovt has taken in $1.53 trillion in withheld income tax. Therefore, a confirmation comes of $1 debt issuance per $1 tax revenue. This pattern actually extends back to September 2008, when capitalism croaked and the banking system died, according to the Daily Treasury Statement. For every dollar of individual tax revenue, the government has issued just over one dollar of incremental debt. Given the 50% Indirect Bid portion of USTreasury auctions, nearly one quarter of US budget deficit is financed by foreign creditors.

Two interpretations are thrusted forward. First is the stark reality that the $400 billion Pentagon budget is almost exactly equal to the foreign funding portion. Foreigners are financing the entirety of aggressive USMilitary activity, a situation that will never persist for long. Second, any whiff of trade war will leave the USGovt vulnerable to an embargo of foreign debt participation for one quarter of its debt funding. The role of monetization enables the USGovt to avoid temporarily a debt default, a point that shallow analysts attribute far too much significance. Of the $3.35 trillion in debt issued over the previous two year period, the USFed has directly (via USTreasury buys) and indirectly (via USAgency Mortgage buys) purchased 50% of USGovt debt output. The trend is clear, loud, and stark. The production of debt by the USGovt is growing out of control, overtaking its forms of funding. The gap will be filled by monetization, the abuse of newly printed USDollars to purchase USTreasury securities. This is the essence of hyper-inflation, whose high risks and ugly signals are glossed over by the clueless cast of economists. If a USEconomic recession takes much deeper root, the individual tax contributions will falter badly, the share of debt will outpace tax income more noticeably and dangerously. Such a development would expose the USEconomy as a Ponzi scheme. Pressures are huge, immense, powerful to keep the 0% interest rate environment a permanent fixture, for debt management reasons. Hence, the Quantitative Easing card will become a necessary staple on the path toward USTreasury default. Hyper-inflation will be a symptom until the default. The alarm reaction will be seen in the Gold price, not so much the currency exchange rates. See the Zero Hedge article (CLICK HERE).

◄$$$ MORGAN STANLEY POSTED A RESEARCH REPORT CLAIMING GOVERNMENT DEBT WOULD DEFAULT BUT IN HIDDEN FASHION. THEY CALL IT INEVITABLE. THE WORD IS SPREADING ON THE SYSTEMIC FAILURE, A CLEAR BILLBOARD NOT EASILY SEEN THROUGH THE CLOUDY DISTORTED MEDIA. THEIR REPORT CLAIMS VARIOUS INFLATION DEVICES WILL BE RELIED UPON, ALL INFLICTED UPON CREDITORS. THE MAINSTREAM OVERLOOKS THE PALPABLE THREAT TO THE ENTIRE MONETARY SYSTEM. $$$

Morgan Stanley calls a USGovt debt default inevitable, in a surprising report that heralds price inflation as the route of escape. One must wonder if the Syndicate is indeed divided. The report came from London. Arnaud Mares is a Morgan Stanley executive director. He focused upon the burden of aging populations and the difficulty of increasing tax revenue, to conclude that investors face defaults on government bonds in wide application. Mares wrote, "Governments will impose a loss on some of their stakeholders. The question is not whether they will renege on their promises, but rather upon which of their promises they will renege, and what form this default will take. [The global sovereign debt crisis] it is not over." He anticipates no missed principal and interest payments, but instead the soft default route where debts are repaid with devalued currencies resulting from faster inflation. Sovereign bond yields might rise, but the currencies behind them might fall. What Mares overlooks is that most major governments are in the same position with respect to debt and impossible repayment. Therefore, his currency devaluation argument might apply ONLY with respect to the Gold price, as well as to most commodities. In other words, money will be worth less uniformly across the globe, as all major currencies will purchase less generally, thus the sweeping devaluation.

Mares devotes much attention to population trends, which he regards as a better predictor of the ability to meet obligations. Economic size in GDP measures fails increasingly to reflect a government's available revenue. He calls that approach backward looking. He wrote, "Outright sovereign default in large advanced economies remains an extremely unlikely outcome, in our view. But current yields and break-even inflation rates provide very little protection against the credible threat of financial oppression in any form it might take. Note that a Double Dip recession would not invalidate this conclusion. It would cause yet further damage to the government power to tax, pushing them further in negative equity and therefore increasing the risks that debt holders suffer a larger loss eventually. The conflict that opposes bondholders to other government stakeholders is more intense than ever, and their interests are no longer sufficiently well-aligned with those of influential political constituencies." He presents many reasons why a more violent USTreasury Bond default is likely, without actually noticing the threat. See the Bloomberg article (CLICK HERE). Mares seems to have a poor comprehension of the monetary system, the currency framework, and the threat to them from the embattled sovereign debt structures interlaced through them. At least he detects the threat of instability and price inflation as a route of escape from debt. In my view, that route will cave in, as the path to debt default becomes a chamber of torture. Watch for forced debt writedowns and debt forgiveness, and a rocketing sequence of massive currency devaluations in a vicious circle. The only winner will be Gold. Remember that Competing Currency Devaluations have not vanished, nor their effects avoided.

◄$$$ USGOVT EYES 410K AND OTHER RETIREMENT ACCOUNTS FOR SEIZURE. THEY MUST FIND FRESH MEAT TO FEED THE USTREASURY BUBBLE MONSTER. TAX LAWS WILL DRIVE THE STRUCTURAL SHIFT TOWARD HIDDEN CONFISCATION AND PERDITION. THE NEXT TARGET WILL BE BANK CERTIFICATES OF DEPOSIT, THE SEIZURE ENABLED BY DEPOSIT INSURANCE LAWS. COLLECTIVISM IS PLANNING BIG GRABS. $$$

The USGovt is drafting new Collectivism Laws designed to seize American private retirement accounts. The new Investment Retirement Account (IRA) bill before Congress is the next attack to also control, confiscate, and destroy the private retirement system. This confiscation was warned several months ago in the Hat Trick Letter, finally closer to reality. In Japan, the entire government and postal worker pension fund system was legally obligated to invest in 0% JapGovtBonds. They fed their continuing bond bubble, now 20 years old. The USGovt plans to usurp private pension funds and feed the USTreasury bubble. Some declare the national health care plan to be a device to create a major new USGovt revenue stream, in parallel to a new private pension fund based in 0% USTBonds. Witness Collectivism and investment in not simply failure, but the last great asset bubble. It too is founded in debt, just like the housing bubble. The unstated purpose of leviathan fascist government is to eliminate competition, protect corruption, and spread inefficiency throughout the land, in the name of total control, abrogating freedoms along the way. Pension systems and health care systems are cornerstones to a Collectivist theme, otherwise known as Marxism.

The tremendous supply of funds in private retirement plans and IRA accounts is being targeted to meet future revenue needs in official parlance. The more accurate description is that the funds are visible for seizure to feed the USTBond bubble, and in the unstated opinion of leaders, to prevent an implosion. Bills have been introduced in both the House and Senate to create the new Auto IRA accounts. At first they will be voluntary but later will become mandatory like Social Security. Some analysts expect the personal contribution levels to increase, thus an employee tax hike to feed the USTBond bubble. In a sense, the personal retirement funds will merge with the Social Security Admin, and be tied at the hip to the USTBond bubble. The $billions of retirement funds will soon become the buyer of last resort, when the rest of the world dumps US$-denominated securities of all stripes. The trend also indicates, due to debate and chatter, that private retirement benefits will also likely be 'Means Tested' so as to remove the more wealthy individuals from expected promised Social Security benefits. Furthermore, individuals wishing to opt out and exit their personal retirement funds will be subject to confiscatory levels of taxes and penalties. The confiscation will be far reaching, and thus block many exit routes. The brain trust  has already been solicited for its endorsement. Check out the views of David John, The Heritage Foundation's leading analyst on issues relating to pensions, financial institutions, asset building, and Social Security reform. His recent research report entitled "The Automatic IRAs: A Conservative Way to Build Retirement Security" exposes the establishment (aka Syndicate) and their USGovt asset grab of retirement wealth. The time to defend oneself and protect personal wealth is drawing to an end. The timeline has been laid out. See the EUTimes article (CLICK HERE). The Syndicate grabbed assets from the top in the last administration. Next it grabs assets from the bottom.

 

The changes that have come since 2009 are not what the Jackass believes in, no way, no how!! Gold & Silver accounts make for much more suitable retirement funds. An important intermediate step is to force 401k, IRA, and Keough accounts into USTreasurys, using tax reform rules and confiscating taxes for exit. Then, the next more devastating step will be to force all Certificates of Deposit held at private banks into a USTreasury conversion, using bank tax and FDIC depositor insurance reform rules to drive the forced migration. The Fascist Business Model is merging with the Marxism principles of Collectivism to form the Untied Snakes of America. The people who rely upon gold & silver to hold their life savings will fare well, but live inside a failed state subjected to military rule, interrupted supply chains, and forced rations. The rest will become slaves to the Syndicate within the same failed state. The hidden hope is that the Syndicate suffers an implosion from lost control, failed assets, wrecked markets, corrupt methods, legal prosecution, and global insurrection against all things tied to fiat paper money.

◄$$$ CHINA OPENLY FEARS SEVERE LOSSES IN ITS MAMMOTH US$-BASED PORTFOLIO. THEY SHOULD BE FEARFUL. A LOWER USDOLLAR IS COMING, EVEN POSSIBLY FORCED DEBT FORGIVENESS. HIGHER BOND YIELDS AND LOWER PRINCIPAL WILL EVENTUALLY COME. $$$

The Chinese Govt holds the largest stockpile of currency reserves at $2.45 trillion, within which 65% are held in US$ form, 26% in Euros, 5% in Pound Sterling, and 3% in Yen. Two thirds of their reserves are invested in US$ denomination, exposed to its risk, no longer a state secret. In an open statement, Hu Xiaolian, vice governor with the Peoples Bank of China, warned that depreciation of foreign exchange reserves held by developing countries is a risk. Hu forewarned about currency instability, depreciation risk, even the implicit risk of fiat risk. She wrote, "Once a reserve currency's value becomes unstable, there will be quite large depreciation risks for assets. The outbreak and spread of the global financial crisis has highlighted the inherent deficiencies and systemic risks in the current international currency system. A diversified international currency system will be more conducive to international economic and financial stability." She called for greater usage of the Chinese Yuan. Owning debt and not money as savings, China bears huge risk from the fiat monetary system. There is nowhere to hide except gold, silver, crude oil, commodity stockpiles, and resource properties. China has signaled a shift away from dollar assets in recent months, more an intention than a reality in a bid to diversify. It has sharply increased its net purchases of Japanese debt, and has raised its holdings of South Korean bonds. See the UK Telegraph article (CLICK HERE). If possible, the Chinese Govt would devote 20% of its reserves to gold bullion. Even their rapid aggressive resource acquisition trail is woefully inadequate. The Western debt structure is too big. The Chinese savings account is too big. The available global resources are relatively small by comparison. China is due for a massive loss in its reserves, at least in purchase power.


◄$$$ A STRONG BUT QUESTIONABLE RUMOR FLOATS THAT THE PEOPLES BANK OF CHINA HAS SUFFERED $400 BILLION IN USTREASURY LOSSES. MEANS FOR LOSSES ARE POSSIBLE, BUT THIS STORY MIGHT NOT BE TRUE. THE MOTIVE MIGHT BE TO STIR THE TRADE WAR WATERS, OR TO BRING UGLY ATTENTION TO THE USTREASURY BUBBLE. $$$

Two websites in recent years have provided controversial information in the global control for power. Neither Stratfor nor Rense has more than 50% credibility in my opinion, after reading numerous accounts, description of the hidden battlefields, and forecasts. Last week came the stunning story of a $430 billion loss by the Chinese central bank in USTreasury Bonds, and rumor of a sudden shameful defection by PBOC Governor Zhou Xiaochuan from China in the wake of the severe loss. If true, witness the first rat jumping off the sinking ship of USTreasurys. Stratfor wrote, "The rumors appear to have started following reports on August 28th which cited Ming Pao, a Hong Kong based news agency, saying that because of an approximately $430 billion loss on USTreasury bonds, the Chinese Govt may punish some individuals within the PBOC, including Zhou. Although Ming Pao on August 30th published a report on its website indicating that the prior report was fabricated by a mainland news site that had attributed the false information to Ming Pao, rumors of Zhou's defection have spread around China intensively, and Zhou's name has been blocked from Internet search engines in China." Apart from the physical condition or location of Zhou, the prospect of China losing nearly half a $trillions in losses on USTBond holdings would be shocking. It would mean that the USTreasury bubble might be approaching the popping phase. Tyler Durden did some quick math. He said, "Assuming average 6-year duration on holdings (completely arbitrary), and a 2% drop in rates, that means $430 billion is 12% of total notional. So somehow China must be short $3.5 trillion in notional or synthetically. Not good."

One must wonder how a USTBond rally in its bubble phase can produce deep losses. To answer, one must enter the world of high finance and financial engineering. Some quick research might show several avenues toward loss. Perhaps by posting USTreasury Bonds as debt collateral in many resource purchases, like in Africa or South America. Perhaps by arbitrage within USTreasurys, where long-term securities were shorted at 0% cost. Perhaps by arbitrage of USTreasurys versus USAgency Mortgage Bonds, carrying out final execution of mortgage asset disposal. My friend and colleague Rob Kirby believes the entire story is false, a ruse to confuse matters and to muddy the waters, even to promote a trade war with greater friction. The Chinese Govt would have motive to add to the confusion, by serving up a motive to continue shedding USTreasurys. Many analysts believe the $2.5 trillion in US$-based reserves is China's new Achilles Heel.

DEAD BANKS STUMBLING

◄$$$ A CREDIBLE SCENARIO FOR BANKING SYSTEM COLLAPSE HAS BEEN PUT FORTH. THE TRIGGER IS THE NEXT QE2 ROUND OF MONETIZATION. MATTHIAS CHANG ESTIMATES THAT THE USGOVT NEEDS $20 TRILLION TO FIX THE HOUSING & MORTGAGE FIASCO. THE BANKS DEEMED TOO BIG TO FAIL ARE LINED UP FOR A KILL IN THE NEXT CRISIS EPISODE. CHANG LAYS OUT A SERIES OF BANKER REACTIONS, STEEPED IN FAILURE AND DESPERATION. $$$

Controversial but brilliant analyst Matthias Chang from Malaysia is beset by challenges in his home country. Notwithstanding, he has written a credible scenario of a global bank collapse. He believes the launch (resumption really) of the QE2 will cause the ripple effects that bring the financial system down. Sometime between the present day and the first quarter of 2011, after the second round of Quantitative Easing has run its course, the Western dominated financial system will suffer a sequence of powerful breakdown events. Matthias Chang correctly forewarned in December 2006, that US & London and European banks would collapse when what he referred to as the Financial Tsunami hit the global economy in 2007. He was spot on correct with the timing.

Quantitative Easing (QE1) began with massive USTreasury and USAgency Mortgage Bond purchase using freshly printed USDollars, by the Bernanke USFed over 18 months time. Chang warned that between Q1 and Q2 of 2010 the global economy would go into a tailspin. It did. The shallow admissions by Bernanke of economic slowdown testify to his correct forecast. Bernanke even mentioned the threat of unexpected developments. Fear has gripped central bankers, evident in private discussions at the annual Jackson Hole gathering in Wyoming. What comes next is the collapse of the global banks. QE1 failed, and QE2 will assure a systemic breakdown, the opposite of a remedy. A grander push of a failed initiative does not produce a recovery, the conventional lunatic mindset. Massive price inflation did not occur, since the USFed hoarded the newly printed money. Constipation in banks will soon turn to heart attacks. Chang describes the many steps toward collapse, injected with only a few consistent Jackass comments to fill.

1)      Many big global banks hold huge amounts of toxic assets. They are junk, but their balance sheets held near book value show them worth $trillions.

2)      The collapse of Lehman Bros and AIG exposed the broad bank insolvency. Extreme reaction and bailouts revealed the ugly truth. A series of bank runs was averted. The nationalization of Fannie Mae aided the process.

3)      Central banks, led by the USFed, accepted toxic assets from the big banks in order to permit compliance of reserve requirements and the appearance of continued operations.

4)      QE1 enabled much of the USFed action to serve as Bad Bank Repository, leaving it with over $1 trillion in toxic assets. Witness a backfire of extraordinary flatullence.

5)      The big banks were flush with cash but did not lend to desperate consumers and cash starved businesses. The cash is actually Loan Loss Reserves, and not loose cash.

6)      Bank cash went back to the USFed as reserves, offsetting the $trillions in toxic waste assets acquired. The illusion of cash rich banks avoided a bank run, maintaining confidence.

7)      The big banks remain insolvent, if proper accounting is used, since they continue to hold a mountain of badly impaired collateralized bonds. The public is not told of the insolvency.

8)      The Bernanke USFed, the USDept Treasury, and global central bankers were hoping and praying that the housing market would recover and asset prices would resume to the levels before the crisis. Their timeframe was 12 to 18 months. Prices are set to fall.

9)      No other semblance of solution exists in the short and middle term except another major quantitative easing, QE2. However, no QE2 can exceed the amount of QE1 without igniting loud alarms and accusations of Ponzi Schemes.

10)  The USFed must embark on QE2, to keep the fractional reserve banking system going. If the USFed refuses to purchase additional toxic waste assets, the global banks will fall short of their reserve requirements, in the face of mounting foreclosures.

11)  The interest offered for so-called excess reserves has produced a merry-go-round of funds, which began with the Printing Pre$$ and end up on the USFed balance sheet after they purchase toxic assets. The QE1 is but a cover for propping the USFed and major banks. The ugliest secret is that the USFed is actually a dead entity.

12)  The big banks can discharge their toxic assets at full book value at no loss, no cost. Witness the BAILOUT RIPOFF of the century.

Matthias Chang does some simple math. Many US homes have lost $100k to $250k, some even more. Multiply this by the millions of houses sold between 2000 and 2008 to see a financial Black Hole. The big banks cannot exit such a gigantic mess. If the USFed and global central bankers through another QE2 round continue to buy such toxic bond waste, they will eventually reveal the situation of grotesque banking system insolvency. Chang estimates that they must embark on QE2 in the amount of US$20 trillion at the minimum. No central banker, even the USFed, would dare to create that much money without arousing the deep suspicion of sovereign creditors, bond investors, and bank depositors. Panic would surely ensue. Executing on an equally large or even larger QE program of bond purchases would essentially produce an admission that the banking system is bankrupt. Chang believes the QE2 will fail just as QE1 failed to save the banks and to stop the bank loss bleeding. Chang calls the patient in Intensive Care for all intents and purposes a brain dead corpse, with a faintly beating heart. He believes the Too Big To Fail Banks cannot be rescued and must be allowed to be liquidated. It will be painful, but it is necessary before a recovery can occur. This is precisely in synch with my viewpoint stated consistently. He fully anticipates a financial tsunami, the likes of which the world has never seen. It will eclipse what was witnessed in late 2008. Global banks will collapse! See the Future Fast Forward article by Chang (CLICK HERE).

Matthias Chang estimates that by early 2011, a series of massive bank runs will occur. They would capture global attention and feed a panic. The Gold price would reflect the worsening sentiment and shattered confidence. He expect the USFed and central banks to try in vain to pre-empt a pervasive bank run. Chang lays out the possible drastic reactions by banks.

1) Disallow cash withdrawals from banks beyond a certain amount like US$1000 per day

2) Disallow altogether cash transactions beyond to a certain amount like US$10,000

3) Restrict transactions (investments) for gold & silver

4) Confiscate gold in a worst case scenario, as happened during World War 2

5) Impose capital controls for movement of funds outside the United States

6) Legislate compulsory daily commercial transactions to be conducted through debit and or credit cards almost exclusively

7) Make deviations to the above a criminal offense.

My reaction is that his layout of risk and reaction makes for a very credible picture. The key to his entire argument or warning is the insolvency of the USFed and major banks, and the continued decay in mortgage bonds and mortgage loans, due to falling home prices. The excess (hardly) reserves of big banks were essentially demanded by the USFed, since it is insolvent, thus hiding its broken condition. A tangent risk is that the USFed will resign its contract with the USCongress, and no longer serve as central bank. Its services, if deep losses are suffered, will not be continued. Their balance sheet is ruined. A risk of USFed resignation is very real in my view, which would instantly result in a USTreasury default. The resumption of vast US$ Money Printing to buy USGovt guaranteed bonds, called Quantitative Easing Round #2, opens the door to the shock and tumult of systemic failure. The launch of the QE2 would furthermore expose the US Fed's visible failure from worsening insolvency. In my view QE2 begins the process of the USFed slitting its throat with a monetary machete, thus their reluctance to do it. They need more collective bad judgment to consolidate before committing Hari Kari suicide. Americans are going to be blindsided by the unfolding of events, as their wealth will be cut in half. It is unclear whether their debts will remain in place, to be repaid in USDollars of twice the cost. Many creditors, like a midsized bank or a retail chain or carmaker, might themselves go bankrupt. The debt would then pass to the new investor that purchases the debt, unless disorder takes over and chaos rules.

◄$$$ THE FEDERAL HOUSING ADMIN IS THE NEXT BIG PROVIDER OF USGOVT BAILOUTS FOR THE GIANT BANKS. THEY FULLY EXPECT A REDEMPTION OF LARGE RAFTS OF WRECKED HOME MORTGAGE LOANS. THE KEY IS READING ACCOUNTING STATEMENTS. $$$


The big banks call them non-accrual loans, not even non-performing. They are actually dead assets, toxic assets, deeply impaired assets, probably worth between 35 and 65 cents on the dollar. Consider JPMorgan, Bank of America, and Wells Fargo for their consistent accounting treatment of wrecked home loans and anticipated USGovt bailouts. The big banks do not write down losses, preferring suspended accounting animation, assured that bailouts cometh from Goldman Sachs on a white horse. They do not come from the AIG back door, but rather from the FHA back door. The Financial Reform movement, better described as a sham seal of Syndicate control, is complete. The next bank bailout has begun. The landmark legislation assured much more transparency by Wall Street firms, if USGovt aid was to arrive once again. The public might expect an end to USGovt largesse directed to the Big Banks, redeeming their semi-worthless mortgage assets. They would be wrong. Watch the back door. Observe the accounting. Check the fine print.

Locate the Q2 earnings report of JPMorgan Chase. Go to the financial supplement on Page 32, where they cover credit quality of their loan portfolio. Footnote (a) refers to over $12 billion in non-accrual loans, not put under the non-performing ledger column. These bad loans are insured by USGovt agencies, in particular the Federal Housing Administration (FHA), which insures residential mortgages. A financial forensic analyst would conclude a Prima Facie case is made for eventual backdoor bailout, with the FHA identified. If the banks did not expect such bailouts, they would have declared them non-performing, put them on a 90-day accounting track, and written off the loan. Instead, one can exercise suspending accounting animation. The problem is pervasive. Locate the Q2 earnings report for Bank of America. Go to the financial supplement on Page 40, and see an explicit line item. It reads "Federal Housing Admin insured loans past due 90 days or more and still accruing" next to a balance of more than $15 billion. Further aggravation comes to BOA from $20 billion in 'Put Back' mortgage loans that industry trade groups have identified. They are improperly underwritten loans possibly to be shoved back at the bank giant. They represent three full quarters of earnings if written down at 50% loss. Clearly, Bank of America plans to collect from the FHA. Locate the Q2 earnings report for Wells Fargo. Page 33 of its supplemental contains a footnote saying that its "90-plus days past due and still accruing... excludes GNMA [Ginnie Mae] and similar loans, whose repayments are insured by the Federal Housing Admin or guaranteed by the Dept of Veterans Affairs." An intrepid analyst dug further, and compared the reported amount with their submitted Y9C form, part of a report to the Federal Reserve. He arrived at over $30 billion for Wells Fargo in estimated mortgage asset exposure.

More banks undoubtedly use the same accounting gimmick and expect similar but smaller FHA backdoor bailouts. The three banks cited tally $60 billion in taxpayer funds soon to be directed in backdoor FHA bailouts of Wall Street, while households receive a pittance on loan balance reductions. Witness the upcoming Deja Vu. In late 2008 and early 2009, the nationalization of AIG enabled vast backdoor bailouts of Wall Street banks, with Goldman Sachs first in line. It is happening again, only this time, the conduit is not AIG, but rather the FHA.

◄$$$ THE F.D.I.C. SYSTEM IS HANGING BY THREADS, WITH $13.2 TRILLION IN ASSETS BACKED BY $15.2 BILLION. THE INSURED BASE OF USBANKS IS SHRINKING, HARDLY A SIGN OF RECOVERY. THE INSOLVENCY GROWS WORSE WITH EACH PASSING MONTH. THE SUCCESS OF THE T.A.R.P. FUND PROGRAM IS EXAGGERATED, AS SOME BANKS HAVE MISSED PAYMENTS OR DIED. $$$

The collection of US banks (large, medium, small) hold $13.2 trillion in assets insured by the Federal Deposit Insurance Corp. The FDIC is not up to their insurance task. Its puny Deposit Insurance Fund is supported by a negative $15.2 billion. That is correct, negative, as shown in the Hat Trick Letter report last month, with graph. The FDIC is reluctant to tap into the USTreasury credit line, which would issue a loud distress signal. Furthermore, the US bank assets are falling, although slowly. The Aggregation Condition & Income Data shows the total assets under FDIC insurance among US banks fell from $13,357 billion to $13,221 billion, from 1Q2010 to 2Q2010. Declines were uniform across category types secured by property and individuals. Witness the deterioration of the USEconomy, its banks, its book of business, and certainly its collateral. The claim of a slow growth in the USEconomy is a lie. The total insured assets in US banks fell by $136 billion. Then take the 104 failed banks where more jobs were lost. A dangerous statistic is that over 95% of all mortgages made in 2010 are backed by USGovt agencies. The FDIC report demonstrates how the USGovt (along with the USFed) is acting as bank middleman and underwriter. The report is more of a reflection of banks not realizing losses and pretending all is well. See the MyBudget 360 article (CLICK HERE).

As a rejoinder story, note that more banks missed making their TARP dividend payments. A gaggle of smaller banks continue to plague the USDept Treasury bank bailout program. More

than 120 institutions, uniformly small banks, have missed on payments. They comprise almost 20% of the banks that received federal aid during the financial crisis. Five banks that received capital injections from the controversial $700 billion Troubled Assets Relief Program have failed altogether, for total losses on their $3 billion in aid. Soon might come exercised options to appoint directors to tardy banks. The revised estimated cost of the program has continued to shrink. The non-partisan Congressional Budget Office recently lowered the projected final cost to $66 billion. See the Washington Post article (CLICK HERE). The TARP Fund was largely a slush fund for bankers to purchase their own depressed stock on a credit line before the planned USGovt bailouts. Later, loans were repaid after guaranteed profits by the big banks.

 
◄$$$ JPMORGAN SUFFERED A CONVENIENT FIRE IN ITS HOUSTON OFFICE, JUST FIVE MONTHS AFTER A DIFFERENT CONVENIENT FIRE IN NEW YORK CITY. THE PREVIOUS FIRE OCCURRED DURING THE TIME OF IMPORTANT HEARINGS BY THE C.F.T.C. IN MARCH. HARKEN BACK TO SEPT 11th OF 2001, WHEN THE THIRD BUILDING ON THE WORLD TRADE CENTER SITE COLLAPSED WITHOUT ANY PLANE CRASH. THE SMALL BUILDING CONTAINED ENRON RECORDS UNDER THE WATCHFUL EYE OF JPMORGAN. $$$

A Houston skyscraper blaze struck JPMorgan office building in the last days of August. To call it accidental would be naive, and fly in the face against all actuarial likelihoods. One must wonder who their insurance carrier is. The fire at the landmark skyscraper in downtown Houston was brought under control. The Houston Chronicle reported that five firefighters were taken to the hospital for minor smoke inhalation. Perhaps their children can be given JPMorgan scholarships for their sacrifice, in defense of the USDollar and bond fraud. Officials said firefighters had trouble sending water to the upper floor on the 40-story building built in the 1920 decade.

Suspicion and cynicism is thoroughly justified. Bix Weir pitched in. He wrote, "Of course my mind runs to thoughts of destruction of evidence and burning of trading records and remember this [headline]: CFTC's New York Regional Office will be Closed Until Monday, 22 March 2010, Due to a Fire in the Basement. What a coincidence that the explosive hearing on COMEX Metal Position Limits was scheduled for March 25, 2010! In today's conspiracy laden world the term 'Where there is smoke there is fire' SHOULD BE TAKEN LITERALLY!!! The battles rage."

Harken back to late March of this year, and another fire. It was not at a JPMorgan site, but rather the offices of the Commodity Futures Trading Commission in New York City. Given the prominence of the Big Four banks, the oversized trading positions to defend the USDollar against gold & silver, the administrative role by JPMorgan with the US central bank, it is a safe guess that JPMorgan, along with Goldman Sachs, Citigroup, Bank of America, and others were protected by the benefits of the C FTC fire. The CFTC office fire was days before an important hearing on illegal market suppression. The odds of such fires are so remote, yet their prevalence is so critical, enough to make suspicion ripe. The fire at New York City CFTC offices at 140 Broadway Avenue forced temporary relocation, but no mention was made of destroyed records or documents. Reports on the internet state that some gold & silver records of the CFTC were destroyed in the fire. The timing was keen, just one week before the Precious Metals Manipulation hearing before the USCongress. In contradiction, Steve Schneider, a CFTC spokesman from HQ in WashingtonDC, called the damage unrelated to the CFTC and that no documents were lost or damaged in the fire. What a relief! See the Economic Policy Journal article (CLICK HERE) from March. Behold the healthy looking suave & debonair Jamie Dimon, whose smile reflects his satisfaction at the privilege of chronic financial fraud, hidden grand theft, and sanctioned counterfeit, with personal gain, all above the law. He is on record as suggesting that bankers should be in full control of the political process.

◄$$$ THE JPMORGAN PROPRIETARY DESK STORY IS FULL OF INTRIGUE, AND LIKELY CRIMINAL ACTIVITY BEYOND THE FINANCIAL ACTIVITY. SEE THE HOUSTON FIRE IN LATE AUGUST. SEE THE C.F.T.C. FIRE IN MARCH 2010. FIRE IS AN INTEGRAL PART OF THE FIAT CURRENCY SYSTEM DEFENSE APPARENTLY. THE TRADING DESKS COULD MOVE TO SECRET LOCATIONS BENEFITING FROM HEAVY COMMUNICATION CABLES CONNECTED TO WALL STREET, USDEPT TREASURY, AND LONDON. $$$

JPMorgan announced they will shut down their entire proprietary commodity trading operation, but one must maintain suspicion. The Volcker Rule in the Financial Reform Bill has caused disruption to the illegal banker enterprise protected by the USGovt for decades. The JPM proprietary commodity trading group is headquartered in London with a few traders located in New York. They were the focus on much conversation months ago, when caught boasting in London bars of downhill trades, huge profits, and criminal impunity. During August, cocky head Blythe Masters had reassured the gang under her wing that the unit would continue on as usual, despite losses and layoffs. Employees are now being told that they should apply for other positions within the JPM firm, as certain offices are being shut down. Speculation flows fast that position limits and other reforms in the Commodity Markets directed by Commissioner Bart Chilton will make continuity more difficult for large players. They might face more challenges to dominate certain markets through sheer position size. According JPM briefings, they will eventually be shutting down all proprietary trading in all markets in response to financial reform, including fixed income and equities which are much larger groups. A high level review by top executives has forced important decisions and reactive reorganization. JPM will be permitted to sustain operations in these markets for commercial and private customers, but must cease trading for their own book. Watch them change the titles of office departments and job descriptions en masse, and hide activity.

Rumors swirled a month ago that Goldman Sachs would shut down its prop trading business. Since then, those rumors were skuttled. Other banks such as Citigroup and Bank of America have instituted changes to the roles of their prop traders. The JPMorgan announcement appears to differs in scope, since they stated intention to shut down all prop trading desks. News has only emerged about one or a number of prop trading desks closing at other banks. Observers must remain suspicious, since $billion crime centers do not simply walk away into the night. The actual shudown of prop trading desks actually might resemble changing the name of prop trading, not the practice. The group enjoys a name change, as the prop traders pretend to work for cleints, while the actual clients are shell corporations under the same roof, or phantom clients who actually are upper management figures. For a working example, check out the Citigroup shuffle done for its star prop trader Sutesh Sharma, whose role changed but his source of marching orders probably did not. A loophole is evident in one key line of the Volcker Rule. It specifies trading operations unrelated to customer operations as being permitted as long as the prop trading is done for client related purposes. Enforcement will be impossible. See the Business Insider article (CLICK HERE) and the Cafe Americain article (CLICK HERE).

Recall that JPMorgan is an expert at special purpose financial entities, developing the craft with Enron. By the way, the third building at the World Trade Center, named Bldg #7, came down on 911 without benefit of any plane crash, no fuel burning out of control, just simple demolition and thermite explosives. The official 911 Commission actually concluded the building fell in structural sympathy to the other twin towers. What a joke, but an insult to sleepy Americans. Try cutting down a tree and expect a nearby tree to fall in structural sympathy! At least 1000 US-based engineers and professors dispute such a silly conclusion. Lest one forget, the Bldg #7 contained all the Enron records held by JPMorgan. The lawsuit against JPMorgan in an extension of the Enron case was dismissed a few months after 911 event, for lack of evidence. Mission accomplished!

Furthermore, the widespread usage of Caribbean offices will be brought into their embattled criminal fold to a greater degree, given wide cover by the main accomplice England. A grand rotation like a carousel has been employed for decades in the Caribbean region, Cayman and Bahamas now out of favor. It serves as a convenient banker playground. Precedent is common, if not rampant. JPMorgan will use shadow entities to sustain their controlled operations of the USTreasury Bond, the USDollar, Gold & Silver, by means of strongarm naked shorts and Interest Rate Swap contracts. The typical rational thinking is never never correct with these guys. They are criminals of extreme proportions, with vast resources, and powerful connections. The news is a grand misdirection, always to be met with suspicion. ONE CAN ONLY WONDER ABOUT HIDDEN VIOLENT CRIMES TO REMOVE PEOPLE WHO KNOW TOO MUCH. Murder and coerced suicides are common to eliminate insignificant middlemen mules. The shutdown of JPMorgan offices means almost nothing in my view. However, their continuation does not guarantee success in fighting the battle against both free market forces and independent global wealthy figures. The list of powers aligned against the US & London financial Syndicate is long, growing, and impressive. The opponents are emboldened by the new Fin-Reg Laws and imposed limitations. My belief is that the financial system that Wall Street & London centers hold together is breaking in five key places, and the fuse soon to lite is Gold. One should anticipate a phony theft story of massive metal inventory in London in the next few months, maybe before Christmas

◄$$$ CITIGROUP FINANCIAL STATEMENTS HAVE BEEN PUT IN DOUBT BY A FINANCIAL ANALYST. HE OPENLY CHALLENGED AND DISPUTED THEIR INTEGRITY. $$$

Mike Mayo of Calyon Securities, the CLSA broker dealer affiliate in the US, is a top ranked veteran bank analyst. He was chosen to testify before the Financial Crisis Inquiry Commission, a no non-sense type. He has developed an adversarial role against Citigroup in recent months. He recently opposed the Citi management and challenged their integrity in an open letter. His note to clients was entitled "A Matter of Trust" in direct challenge. In it he wrote, "We believe that Citigroup's financial targets can encourage short-term excesses over long-term prudence. Citi has an aggressive financial target of 5% asset growth when so much of its past problems stem from excessive asset growth... The big bank cannot be trusted to provide investors with accurate disclosure about its financial condition or future plans to make money, and that the firm is setting the stage for future problems similar to those that nearly caused the bank to fail two years ago, prompting a massive government bailout." See the Zero Hedge article (CLICK HERE). Citigroup is in a tight race with Bank of America to see which Zombie bank dies first. Both are insolvent broken zombies. BOA almost croaked in late July, saved by the USFed. Citigroup is kept alive for its crucial role in money laundering and basic investment of CIA narcotics trafficking. One must wonder if Mayo is aware. Probably so!

◄$$$ THE S.E.C. HAS PROTECTED THE ELITE UNDER FIRE OF PROSECUTION AND LAWSUIT. OF COURSE, THE S.E.C. IS RUN BY WALL STREET PLAYERS WHO TRAVERSE THE REVOLVING DOOR. ALL FRAUD AND MALFEASANCE CONVICTIONS FROM THE GREAT FINANCIAL CRISIS BUST HAVE BEEN WITH PEOPLE OUTSIDE OF SOUTH MANHATTAN. $$$

The Securities & Exchange Commision has admitted to protecting certain high level executives on Wall Street from prosecution. A courting document revealed that Chuck Prince and Robert Rubin were among the Citigroup officials fully aware of mounting 2007 losses on mortgage assets. The US regulators (and Wall Street protectors) have blamed the bank for not disclosing these same losses. Prince was the bank CEO and Rubin was Chairman of the Board. Both had knowledge that the highest rated segments of subprime mortgage backed securities were the source of $200 million in new losses in October 2007, according to SEC filed documents at federal court in WashingtonDC. In July, the agency accused the bank and two other executives of failing to disclose $40 billion in subprime assets before losses grew wild. Both Prince and Rubin avoided any of these same charges. The Elite received a pass from prosecution. Rubin is busy managing his puppets at Treasury and White House posts, above the law. A $75 million settlement with the SEC requires a court approval. US District Judge Ellen Huvelle has formally inquired from the SEC in August to explain what senior executives knew before she makes the judgment. The identification of Prince and Rubin might result in a widened scope of charges, unless the judge receives a Syndicate phone call. See the Bloomberg article (CLICK HERE).

◄$$$ WALL STREET GIANT GOLDMAN SACHS FINED 20 MILLION POUNDS STERLING BY THE U.K. FINANCIAL SERVICES AUTHORITY. OUCH! THAT IS LESS THAN KITCHEN MONEY, LIKE COOKIE MONEY. FINES ARE MOUNTING, ALTHOUGH STILL SMALL. THE GSAX CASE MIGHT HAVE A LONDON EXTENSION, IN CURRENT INVESTIGATION. $$$

The financial watchdog in Britain has levied a tiny fine against Goldman Sachs, less than kitchen money, more like cookie money or kid's allowance money. The UK City regulator, the Financial Services Authority, imposed the penalty for failing to tell the FSA it was under investigation for fraud by the US financial watchdog this summer. This is a rule. GSax cares little if anything about rules. They are above the law, and regard fines for violations as a cost of doing business. In July, Goldman settled the fraud charge with the SEC in the United States by paying $550 million. The US fine settled civil fraud charges concerning malfeasance in misleading investors. The charges concerned the bank's marketing of complex mortgage investments, just as the US housing market faltered, where they set up investors for sudden deep losses knowingly. The FSA specifically stated that Goldman failed to inform them that Fabrice Tourre, the trader who helped to create these mortgage derivatives, was under investigation. Relevance stems from the fact that Tourre moved from the US to London, and therefore came under the auspices of the UK regulator. Fabrice Tourre, the Goldman trader whose boastful emails to betray clients were at the center of the complaint, is still defending against formal charges brought against him by the SEC. People in London familiar with the case claim that the fine is not based specifically on the Abacus transaction, but is the result of its investigation into business practices by GSax in London sparked by the SEC allegations. The Abacus case might take wings and grow on London soil.

The 20 million Pound fine is one of the heaviest fines ever imposed by the FSA. The largest fine handed down by the UK regulator came in June, when JPMorgan paid a 33.3 million Pound penalty for failing to keep client money in separate accounts, a case of co-mingling. The case deals yet another blow to Goldman, whose efforts to put the high profile fraud case seem littered with debris. See the British Broadcast article (CLICK HERE). This is much like a sex offender moving to a new state, which requires registration. First fines, then court cases, finally jail, culminating in Nuremberg trials for US/London bankers. One can only hope.

Goldman Sachs has suffered bad press and tarnished image in recent months. They have been exposed as having favored the interests of select clients at the expense of others during the financial crisis. Its business model is under pressure after volatile markets inflicted heavy losses, and regulatory reforms forced it to shut some of its highly profitable proprietary trading offices. Last week, the private equity firm Kohlberg Kravis & Roberts (KKR), a global asset manager working in private equity and fixed income, entered into formal talks with individuals from the Goldman Sachs proprietary trading group. They will likely hire several key GSax people, and possibly continue some illegal enterprises with the blessings of the USGovt.

◄$$$ A MAJOR SLAM HAS HIT GOLDMAN SACHS IN CHINA, FROM A BESTSELLER BOOK. IT PAINTS GSAX (CORRECTLY) AS A CONSPIRATOR, A SAVAGE CAPITALIST, IGNORING RULES, ENJOYING PRIVILEGE, WITH ITS FINGERPRINTS IN MOST FINANCIAL CRISES. THE TRADE WAR HEATS UP. $$$

Goldman Sachs is not only reviled in the United States for its role in the financial crisis. It is being slammed in China. A sensational new book accuses the investment bank of trying to destroy China. The book is entitled "Goldman Sachs Conspiracy" and has sold over 100 thousand copies since its June release. It follows another similar slam book entitled "Eliminate All Competitors: How Goldman Sachs Wins Over the World" published last year also by Li Delin. The same author wrote a popular accusatory book about the attack of Toyota by America, which in my view has much merit. See the threat to shut down the Okinawa Military Base, a decision reversed by the Japanese Govt. The dramatized account, replete with literary license, covers much of the same ground by Matt Taibbi last year in the Rolling Stone magazine. Taibbi has gained attention and notoriety from his description of GSax as a "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money." Li insists throughout the book that the GSax goal ultimately is to kill China. Harken back one century when Britain introduced opium to China for a precedent. The financial cataclysm of 2008 and ensuing financial crises that have not ended have spawned a profusion of books examining the role of global investment banks including Goldman Sachs. They are widely seen as the main culprit behind the mess. Li denies the book was an exaggeration. Defiantly, he said "The real financial battle is even more dramatic than my book, according to my knowledge of the markets. Goldman Sachs is the hand behind the financial crisis, maybe even its cause." The Jackass concurs, as the depth of vile behavior is three times deeper than told. Li plans to soon publish a third book about the company.

Goldman conducts business in China. They acted as an underwriter in the recent record breaking $22.1 billion initial public offering by the Agricultural Bank of China, among other big deals. GSax realized a gain from a 12.5% investment stake in drug maker Shenzhen Hepalink in 2007. Despite strong control over the news media and broadcasters, the Chinese book publishing industry enjoy a more freedom for commentary, particularly when the targets are consistent with trade friction opponents. The new smash hit book accuses Goldman Sachs of involvement in the recent Dubai and Greek debt debacles, as well as the broader European sovereign debt crises. The book cites well-known links between Goldman Sachs executives like Henry Paulson and officials in the USGovt and other national leaders. The book includes copies of US court documents, from complaints against GSax and Fabrice Tourre in the Abacus case of bond fraud misrepresentation. The penalty was the largest against a Wall Street firm in SEC history, yet amounted to under 5% of the GSax net 2009 income of $12.2 billion, after divident payments. See the National Public Radio article (CLICK HERE). One must wonder why the Chinese Govt does not simply impose a ban on certain Wall Street firms from activity inside China.

◄$$$ A WAVE OF WALL STREET JOB CUTS COMETH. THEY ARE LONG OVERDUE AND FULLY DESERVED. HOWEVER, THE CUTS WILL BE AT JUNIOR POSTS, NOT HIGH LEVEL WHERE DESERVED. PROTECTION OF THE ELITE AND BRASS WILL CONTINUE. $$$

Meredith Whitney, the former Oppenheimer analyst, has been speckled with deep insight but also some recent compromised notions. Whitney believes that Wall Street firms will cut 80 thousand jobs in the next 18 months, as revenue growth slows. Such reductions would comprise 10% of current workforce levels. She expects the bulk of job cuts will come after 2010 compensation payments like bonuses, which will be dramatically down in her words. She made a name for herself, after correctly predicting Citigroup's dividend cut in 2007. She wrote, "The key product drivers of Wall Street revenues and profits over the past decade have been in a structural decline over the past three years. The year 2010 marks the first year in many in which Wall Street centric firms will go through structural changes." She refers to shattered Wall Street business lines, like the lost IPO stock business, lost corporate bond business, lost municipal bond business, and lost private equity structured finance business. If clients are not broken and busted, they are engaged in lawsuits against the Wall Street firms on numerous fronts. So obviously business is down, along with profits. The damage extends to Europe and England. Barclays, Credit Suisse, and Royal Bank of Scotland Group will likely order job cuts (called hiring slowdown) in Europe as the fixed income trading boom fizzles out. Bear in mind that the USTreasury Bond bubble has sucked most capital from the world, as bond offerings struggle. For instance, the Barclays Capital income from trading bonds and commodities fell 40% in the first half of 2010 during the sovereign debt crisis. Whitney expects what she calls deeper secular change in direct result to declining business revenues like bond securities, a decimated industry due to deep bond fraud. The movement toward regulatory reform, including higher capital requirements at banks, will force some of these shifts.

HOUSING & MORTGAGE MILLSTONE

◄$$$ PENDING HOME SALES STILL LOOK MISERABLE. THEY ARE ACTUALLY AT PRE-CRASH LEVELS SEEN IN 2008. THE USGOVT PROGRAM ACCOMPLISHED NOTHING, EXCEPT TO OFFER FRESH POWERFUL NEGATIVE MOMENTUM AS THE VOID HAS BEEN ENTERED. THE HOUSING MARKET REMAINS THE GIGANTIC MILLSTONE AROUND THE USECONOMY'S NECK. WHAT LIFTED IT FROM 2003 TO 2006 IS KILLING IT SINCE 2007. $$$

Crash dead ahead! The housing market, no longer in suspended animation from useless respites tied to tax credits, will sink on its own merits. The process will be long drawn-out and torturous, given full benign neglect by national leaders. They are helpless to prevent it. Many midsized banks almost demand it, to clear their REO inventory. July pending home hit record low levels, actually below previous crash-level level at the beginning of 2009. The mindless tax credits sucked forward a great many sales, leaving a vacuum today. That is why such programs are useless. They fix nothing. The index of contracts in progress to purchase a home increased from 75.5 to 79.4 for a minor rise. In the previous two months demand had fallen a record 30%, then a tad more. The July 2010 index is 19% lower than July 2009. Low mortgage rates offer absolutely nothing toward remedy or clearing the market. The problem is much deeper, structural, as collateral value has fallen, lenders are unwilling to extend credit, and incomes are not secure. Freddie Mac announced two weeks ago that the 30-year fixed rate mortgage has fallen to 4.32%, another record low. Low rates and 30% lower home prices nationally have failed to revive the moribund market. The paradox brings attention to a broken market. Part of the reason why is that the US banking system is dead, kaput. Existing home sales represent the vast majority, 90% of residential housing transactions. See the Business Insider article (CLICK HERE).

◄$$$ HOUSING SALES CRASH, AS THEY FALL 27% FROM JUNE TO JULY. THE TAX CREDIT INDUCEMENT HAS DEEPLY AFFECTED FINAL SALES. A CRASH IS IN PROGRESS. NATIONAL LEADERS ARE DELAYING ANY ACTION UNTIL AFTER THE NOVEMBER ELECTIONS. MOMENTUM WILL BE GREAT BY THEN. HOUSING PRICES ARE CERTAIN TO FALL ANOTHER 10% ACROSS THE NATION, MORE IN BUBBLY REGIONS. IT WILL RESULT IN A WAVE OF NEW INSOLVENCIES. $$$

Exising US homes sales plummeted in July to the lowest pace in 15 years, in a resumption of the powerful economic recession. The report by the National Assn of Realtor has struck fear in the hearts of the most deluded bankers, who cling to the illusion of a sluggish recovery. The deterioration is historic. Existing home sales dropped a record 27.2% from June to an annual rate of 3.83 million units, the lowest since May 1995. A whiff of reality came from Michelle Meyer, senior economist at Bank of America Merrill Lynch in New York. She said, "This is a worrisome report. While it reflects the volatility caused by the end of the USGovt home buyer tax credits, it also indicates a deterioration in the underlying trend for housing demand. For the overall economy, the dangerous link to housing is home prices. This report signifies that home prices should fall considerably faster, which could tip the economy back into a recession. We are, however, not quite there yet, but this is a worrisome report." Most analysts minimized the decline as having been exaggerated by the end of a popular housing tax credit. Reality is worse, as the program created a dangerous vacuum, leading to powerful downward momentum that will feed upon itself. Future buyers will retreat and wait. Buyers in recent months were pulled forward. First-time buyers accounted for 38% of transactions, the lowest in 12 months. Housing prices will eventually go below construction costs in the most bubble plagued regions.

With sharply reduced home sales, the inventory of existing homes for sale rose 2.5% to 3.98 million units from June, representing a supply of 12.5 months, the highest since at least 1999. Hidden from view, and absent in the statistics, is the bank owned inventory from home foreclosures. So supply is much bigger. The banks are seizing around 50 thousand homes per month. The overhang of unsold homes has a huge reservoir of additional inventory in wait. The national media refuses even to mention this important factor. In August, foreclosed properties accounted for 22% of sales, while short sales made up 10%. Short sales involve a seller who is mired in negative equity, the sale price less than the loan balance. In those sales, cash by the seller is brought to the closing or else the banker eats a loss at the table. See the Yahoo Finance article (CLICK HERE).

No housing market recovery is remotely possible until the growing bank REO inventory is brought under control, reduced, and cleared. Home prices will decline another 10% to 20%, depending upon region. As even Alan Greenspan noted, the housing market is on the verge of a critical insolvency level. A huge swath of homes across the US is only slightly above the solvency level, where value still exceeds the home loan balances. Another significant push lower would result in several million more people going under-water into negative equity. It would result in another $2 trillion in lost home equity, and greater household poverty.

◄$$$ THE HIGH END HOUSING MARKET HAS VANISHED. NO SALES FOR TWO MONTHS IN A ROW. REGARD IT AS A DEAD LIMB ON A DYING TREE, OR A HUMAN BODY WITH A NECRIFYING APPENDAGE. THE DEAD TISSUE IS SPREADING LIKE GANGRENE. $$$

The always excellent economist David Rosenberg pitched in with a quick report on the broken luxury home market. It is vanishing nationwide. He wrote, "The high end market, in particular, is under tremendous pressure. In fact, it is becoming non-existent. Guess how many homes prices above $750k managed to sell in July. Answer: zero, nada, rien, and for the second month in a row. Only 1000 units priced above $500k moved last month. That is it! Over 80% of the homes that the builders managed to sell were priced for under $300k. Just another sign of how this remains a full fledged buyers market, at least for the ones that can either afford to make a down payment or are creditworthy enough to secure a mortgage loan. Keep in mind that 25% of the household sector has a sub-600 FICO score."

◄$$$ MORTGAGE AID IS COMING DOWN THE PIKE. THIS IS A BACKDOOR QE2 PROGRAM, A PRELUDE TO A MUCH MORE VAST DESPERATE MONETIZATION INITIATIVE. THE FEDERAL HOUSING ADMIN IS SET TO SUBSIDIZE DIRECTLY THE BANKS FOR THEIR PORTFOLIOS AND TO ACCEPT DAMAGED LOANS IN MODIFICATION WORKOUTS. TWO OBSTACLES IN THE REMOD PLAN ARE LOANS CURRENT IN PAYMENT, AND LOANS WITH SECOND MORTGAGES ATTACHED. $$$

The USGovt will attempt again to deploy broader mortgage aid to beseiged homeowners. The goal is an ambitious effort to reduce mortgage balances for homeowners whose loans exceed their home value. The goal is to aid between 500 thousand and 1.5 million underwater loans. The new program was announced in March. Usually such programs reach less than one quarter of the goal, as obstacles are encountered. The first initiative is to target homeowners who are current on their mortgage payments. The same obstacles are present as in previous programs. The key difference to this program is FHA participation, and possible actual assumption of the home loans. Under the new Short Refinance program, banks and other creditors that write down mortgages to less than the value of the property can essentially hand off the reduced loan to the USGovt. The refinanced borrowers migrate into loans backed by the Federal Housing Administration. Rosy estimates indicate 20% of such program loans could default. Truer estimates from past experience are closer to 50%. However, $14 billion has been set aside from funds left over from the Troubled Asset Relief Program. The constant risk facing the housing market is the glut of underwater (negative equity) homeowners who could default if their personal finances or home prices worsen. About 11 million homeowners, or 23% households with a mortgage, were underwater as of June 30th, according to CoreLogic.

The last program put forth by the Obama Admin was the signature Home Affordable Modification Program (HAMP), another dud in a series of duds. The new program differs in its FHA loan assumption handoff. HAMP fell far short of aiding three million homeowners, its goal. Half of the 1.3 million borrowers that enrolled initially have fallen out because they did not qualify. Only 33% received permanent modifications. The ultra-low mortgage rates mattered little, as income and payment records were dominant factors. The process requires some realistic level of cooperation from the banks that underwrite the loans. A race is also on to outrun the scheduled adjustable rate hikes built into home loan contracts.

The Obama Admin plan is not targeted for loans held by Fannie Mae & Freddie Mac, which own or guarantee half of the $10 trillion in US first mortgage home loans. Instead, the plan is to reach more loans that were bundled by Wall Street firms and sold to investors as mortgage backed securities. This is precisely where the majority of the bond fraud occurred. Investors from hedge funds and pension funds have been clamoring for such a program, after they have been forced to mark down their assets in losses. The program must resolve a stubborn problem that has hindered every other modification program, namely second mortgages. They are generally worthless and a great obstacle. The program requires second liens must be reduced so that the total mortgage debt is less than 115% of the current home value. The program permits partial payments for such reductions. However, banks have been very reluctant to write down seconds that are current on track with payments even if crippled by insolvency. Bond investors who hold first mortgages are guarded toward any writedown of their loans without extinguishing the seconds. The junior liens are legally in a first loss position. Vincent Fiorillo is from Doubleline Capital, a fixed income firm. He emphasizes that the the majority of second mortgage loans are worthless. He claims the program could work for loans without seconds, although he believes many borrowers will still have too much debt to qualify for an FHA-backed loan. Refer to car loans and credit card debt.

The challenge will be difficult. Mortgage servicers handling loan payments must decide which loans should be modified, but they are overwhelmed. Some borrowers will refuse a principal reduction due to damage on their credit scores. Also, some investors will be blocked from participation since certain contracts that govern mortgage securitizations require that modifications can proceed only if an imminent risk that the borrower would default, and such declarations are hard to formalize. Analysts say that the program is most likely to succeed on loans that banks already own in their portfolios. Reduction of some loan balances that are current on payments could expose mortgage servicers to lawsuits from investors that hold the riskiest slices of bonds. Those investors would be ruined if balances are greatly reduced. The loan modification mission is very complex. Therefore, the target for aid is the set of home loans in the worst position. Loan servicers are to be given the flexibility to modify current loans, and to shovel them to the USGovt agency. See the Wall Street Journal article (CLICK HERE).

◄$$$ THEN VERSUS NOW. THE AMERICAN DREAM TURNED NIGHTMARE, WITH THE FULL ENCOURAGEMENT OF THE USGOVT, BIG BANKERS, AND NATIONAL MEDIA. CONTRAST THE TWO MESSAGES, FIVE YEARS APART, WORLDS APART. HEFTY 95% MORTGAGES ARE STILL AVAILABLE THROUGH FANNIE MAE. BEHOLD THE BUSH OWNERSHIP SOCIETY TURNED INTO A BANK OWNED VASSAL SYSTEM. $$$

A 2005 Time Magazine wrote, "Ah, the blistering real estate market, where dreams of big bucks come wrapped in aluminum siding, and you can get a three bedroom ranch house with your hair extensions and a mortgage with your grilled stuft burrito. The stock market may be dragging, but home prices are soaring, fueling a national obsession with real estate. Your house is now your piggy bank, ATM, and 401k. House gawking is a hobby for remodeling, both entertainment and an investment. Folks brag about having bought their home in the 1990s the way they used to brag about having bought Microsoft in the 1980s. Even if you are not contemplating buying or selling anytime soon, the amazing lift in home values is changing the way we think about the roofs over our heads. Real estate is not so much about nesting today as it is about nest feathering." The financial sector has never identified an asset bubble in progress. The big bankers feed the bubble, exploit the bubble, and often exploit its bust.

 

A 2010 Time Magazine wrote, "Homeownership has let us down. For generations, Americans believed that owning a home was an axiomatic good. Our political leaders hammered home the point. Herbert Hoover argued that homeownership could 'change the very physical, mental, and moral fiber of our children.' Franklin Roosevelt held that a country of homeowners was unconquerable. Homeownership could even, in the words of the (George HW Bush) Secretary of Housing & Urban Development, Jack Kemp, 'save babies, save children, save families, and save America.' A house with a front lawn and a picket fence was not just a nice place to live or a risk free investment. It was a way to transform a nation. Houses owned by the people who lived in them, we believed, created social and financial stability, more involved citizens, safer neighborhoods, kids who did better in school. No wonder leaders of all political stripes wanted to spend more than $100 billion a year on subsidies and tax breaks to encourage people to buy." Housing did not let us down. Wall Street, the US Federal Reserve, and the USCongress betrayed the nation, defrauded the nation, and remain in tight control, without any hint of prosecution for profound fraud or worse. Search for outright theft by the Bush Family and his friends, including perhaps Kemp, from Fannie Mae, where $1.5 trillion was looted from 1988 to 2000.

◄$$$ MIAMI FLORIDA RAISED PROPERTY TAXES AND ABROGATED CONTRACTS. DESPERATE HAS TURNED STUPID. A CHAIN REACTION WILL DEVELOP INTO POWERFUL DOWNWARD MOMENTUM, AS SELF-INFLICTED WOUNDS WILL LEAD TO ANGRY VINDICTIVE REACTION. $$$

Miami Florida is bankrupt, desperate, and making stupid decisions. The wrecked state cannot help, and the federal government is beholden to the Banking Syndicate and War Machine. Deeply mired in a fiscal emergency, Miami has broken employee contracts, and hiked property taxes and usage fees. With home values falling, they should lower such taxes. The news media call the actions an enormously foolhardy attempt to make ends meet, despite the hammering done to Miami home prices and the citizenry 12% unemployed. Painful tax and fee increases are due to hit. A Miami-Dade County plan will soon raise property tax rates 12.2% uniformly, and also raise capital spending on undisclosed projects by a staggering 56%. It further plans to raise water and sewer rates by 5%. The water and sewer departments are running quite profitably, thus treated like a cash cow, delivering an added $25 million to the operating budget.

Miami is in the process of breaking employee contracts. Although not legal, challenges will be difficult to pull off since the county is broke. The city of Miami is forcing employees to take pay cuts, even though under contract. Mayor Tomas Regalado has reacted to a financial mess the likes of which never seen before. He admits to have only grim options. He said, "It is either that or we layoff 1000 employees or we raise taxes to the max, and we are not raising taxes to the max." The city is operating under a state of fiscal urgency, burning its furniture in a bonfire to draw heat from the fire. That fiscal urgency declaration allows city commissioners to impose salary cuts on employees, despite their contracts. Its project itinerary should be scrutinized closely for stupidity and brothers in law lurking within contracts. The budget deficit for next fiscal year is $110 million. The proposed budget cuts in salary, pension contributions, and health insurance costs will save $86 million for the city. Look for many cities to repeat errors.

◄$$$ MIAMI WAS THE SITE OF A NATIONAL JAMBOREE OF HOMEOWNERS FACING FORECLOSURE AND LOST HOMES. SUCH AN EVENT IS A CLOSE COUSIN TO TENT CITIES IN FORMATION. REGARD IT AS A SYMPTOM OF THE SLIDE INTO THE THIRD WORLD. $$$

Welcome to America's biggest jamboree of delinquent borrowers in history. For five days, the Neighbourhood Assistance Corp of America (NACA), a not-for-profit organization, worked 24-hour days to assist homeowners to keep their houses. More than 12 thousand people signed up in advance and more than 20 thousand turned out, travelling from as far as California, Georgia, and Maryland. They imminently dispossessed homeowners flocked to the Florida jamboree in a desperate bid to save properties. They were not deterred by darkness, high humidity, sub-tropical rain, or dampened spirits to enter the cavernous Florida convention centre. Many used camp beds or makeshift tents. All clutched folders of mortgage documents. It is a national tragedy. They earn contempt by the Wall Street bankers, and their empty words. See the UK Guardian article (CLICK HERE).


◄$$$ HOMEBUILDERS RENEW ACTIVITY AFTER LAND PRICE ADJUSTMENTS. THE RESULT SHOULD BE LOWER NEW HOME PRICES AND CONTINUED PRESSURE DOWN ON THE ENTIRE HOUSING MARKET. THE BANKS WILL CONTINUE TO FACE BLOATED NON-PERFORMING CREDIT PORTFOLIOS, WITH MORE LIQUIDATION. BUILDERS ARE WORKING THROUGH AN IMPORTANT DOWNSHIFT PHASE, SHOWING MORE EFFICIENCY AND LOWER PRICES. BANKS SHOULD FOLLOW THE CAPITALIST LEAD IN THE MORTGAGE MARKET, BUT INSTEAD EXTREME CONSTIPATION AND BOND FRAUD IS THE NORM. $$$

A great number of homebuilder projects had been mothballed, but after three or more years of stagnation, activity has returned. Many projects stood incomplete, leaving people in awkward speckled neighborhoods. Their completion is welcome news to those hoping to use common facilities. Big equipment, materials delivery, and work crews show signs of life again, but with an effect. The price of lots, and thus new homes, has come down. That is good for buyers and bad for homeowners in the same development subdivisions. It adds downward price pressure for the housing market generally. For developers it is neutral since their cost structure has been lowered. Banks have reduced seized project prices, as they return to activity in a pure capitalism sense. Developments are being resuscitated from Florida, California, and Las Vegas to Utah and the suburbs of WashingtonDC, according to Metrostudy, a housing research outfit in Houston. Their chief economist Brad Hunter said, "This is a natural progression of the cycle. Projects fail, the price of the asset drops until it reaches a point where it is profitable for someone else to pick it up and remarket it. They reposition the project and then what was formerly infeasible, is feasible." He understands that the revived projects contribute to a delay in the US housing recovery by adding to the supply of available homes, a necessary step. Curiously, many homebuyers are NOT interested in foreclosured properties, which are often damaged or in inferior locations.

Builders are buying lots at less than half their original prices from lenders motivated to move distressed construction loans off their books. Builders benefit from cheap land and falling construction costs as they alter design plans to smaller scales and lower profit margins. Builders are more cautious in this wave, limiting the numbers of houses under construction without having buyers lined up. Picking up where another builder left off can be complicated by the passing of years. From the neglect due to inactivity, weeds grow, swimming pools go green, permits expire, vandalism occurs, and homeowner associations turn insolvent, said Taylor Grant of California Real Estate Receiverships in Newport Beach. In some cases, partially built homes are knocked down, as they fell victim to exposed conditions. In other cases, builders take great advantage of the misfortune of others. Some have purchased lots with power, sewer, and water lines, even local government approvals, selling finally constructed homes for less than foreclosure prices, but without the damage.

Prices in some neighborhoods are slightly above the cost of a foreclosed home. The 12 largest homebuilders by market value added 16,631 lots in their past two quarters, according to Bloomberg data. Larger homebuilders such as DRHorton, Lennar, Meritage Homes, KBHome, Standard Pacific, and Toll Brothers began picking up recycled projects about a year ago. Certain advantages have aided the process, from tax code changes. Scattered private equity firms are partnering with builders, large and small, to buy projects around the country and resume market activity. New home sales fell 12% in July to a record low annual pace, according to the National Assn of Realtors. Single family housing starts fell 4.2% from June. Foreclosure filings continue like a death march, having increased 4% in July from the previous month, reports RealtyTrac. Some new lifeblood will stir in the new home sector, but with downard price pressure.

In the Phoenix metro area, 48 communities have reopened with about 40 more coming in the next year, according to Land Advisors. New homes in Phoenix are going for half the price from sold units four years ago, and the average size has downshifted from 3000 square feet to 2100 sqft. In Phoenix more than half the homes sold are foreclosures. The number of newly built houses and condos sold in July in the metro area fell to 641, down 50% from June and down 38% from a year earlier. The metro area is a disaster.

Take Toll Brothers for example, the largest US luxury home builder. They spent $340 million on new land in the first nine months of its fiscal 2010, adding 4100 lots. The firm had gone dormant since 2006, and has $1.64 billion in cash for more deals. One project points out the land price bargains. Toll Brothers paid $23 million in February to SunTrust Banks for the Hasentree project, a foreclosed golf course community in Wake Forest North Carolina. It was once appraised for $78 million. Hasentree featured a completed community activity center, finished roads, 400 acres of dedicated green space, 100 developed home sites, 218 raw sites, 18 new homes seeking buyers, and 40 occupied houses at the time of the sale. Fresh deposits have come to four new homes on site. Their list prices start at $670k, down from the original price average of $1.5 million. Again, great for new buyers, but horrendous losses for the 40 occupied homes who failed to detect the trend in previous years . See the Bloomberg article (CLICK HERE). Several banks are acting within capitalism norms, pushing the recycle process and accepting losses, delivering product to the market at lower prices. The big banks must follow suit in the mortgage market. That is NOT happening! The norm for big banks is inventory bloated overload, accounting fraud, vast USGovt subsidies, coverup of bond fraud, and the resulting extreme constipation that obstructs any and all recovery. The Too Big To Fail banks are going to fail, despite the colossal USGovt welfare.


USECONOMY FACES THE ABYSS

◄$$$ JOBLESS CLAIMS REMAIN NEAR THE DREADED 500K WEEKLY LEVEL. AN ANOMALY OCCURRED FOR REPORTING LAST WEEK DUE TO LABOR DAY. ESTIMATES WERE PROVIDED IN NINE STATES, SURELY FAVORABLE. $$$

In the last four weeks, the jobless claims reveal continued pain for the public while at the same time reveal the lies of any USEconomic recovery. The last four total submitted jobless claims were 504k, 478k, 472k and then last week 451k. The financial markets rejoiced for an hour, relieved by the fleeting deception. A convenient jigger was baked within, from the lack of reporting by nine states. The Labor Day weekend enabled some rosy estimates to enter the equations. Nine states including the biggest in California did not report initial claims data. So the USGovt took it upon themselves to estimate the data. California and Virginia estimated their own figures but the ever wise USGovt bean counters estimated the other seven. Tyler Durden said, "Official data is now made up on the fly. This US economic data reporting has just entered the twilight zone. Also, when the data is officially made up, it is not that difficult to get data that is better than expected." The remaining states involved were DC, Illinois, Idaho, Hawaii, Oklahoma, Michigan, and Washington. Continuing claims have fallen from early summer levels, but mainly because workers are losing benefits altogether, not due to hiring. The continuing claim count has been stuck near 4.5 million for a few weeks. See the Zero Hedge article (CLICK HERE). Look for an upward revision later for the first September week. As has been mentioned in the past, no USEconomic recovery is evident when half a million people or so lose their jobs per week. Any claim otherwise is pure nonsense. The declining productivity (minus 0.9% in 2Q2010) testifies to the futility in hiring. In fact, the productivity gains have been mostly due to job cuts. But now, the business sector is running on empty with respect to intellectual capital and labor capacity.

◄$$$ SHADOW GOVT STATISTICS MEASURES THE JOBLESS RATE MORE REALISTICALLY AT 22.0% TRAGICALLY. THE OFFICIAL FIGURE IS 9.5%, STABLE OVER THE LAST FEW MONTHS. THE MONEY SUPPLY FACTOR FORECASTS A STRONG RECESSION, ALREADY IN PROGRESS. $$$

The Bureau of Labor Statistics plays its silly useless distortive games with categories of workers: active, discouraged, long-term discouraged, dropouts. What a stupid game they play! They cite shifts among categories, deceiving all along the way. The official August jobless rate was 9.64%, up from the 9.51% July rate, due to nutty tally shifts, including unexplained methods behind seasonal adjustments. They too occur so often that they serve as policy tools to control the data. The Shadow Govt Statistics folks do excellent work, deciphering reality. The August U.6 unemployment rose to a seasonally adjusted 16.7% versus 16.5% in July. Since the Clinton Admin, games with discouraged workers have been convenient to suppress the jobless rate. The U.6 attempts to include them. John Williams of SGS wrote, "Adding my estimate of the excluded long-term discouraged workers back into the total unemployed, unemployment, more in line with common experience as estimated by the SGS Alternate Unemployment Measure, rose in August to about 22.0% from 21.7% in July." If not for the farm element, comparison to the Great Depression would show the current situation as worse.

Declining year-to-year change in real M3 money supply signals an USEconomic downturn, more like an intensification of the current contraction. The reduction in broad liquidity customarily constrains USEconomic activity. The red flag signal arrived in December 2009 when real M3 turned negative on yearly comparisons. The downside shift in business activity usually follows within six to nine months, as in now, according to Williams. Check out the updated graph through August 2010, shown a few times in the last few Hat Trick Letter reports. Its progression is stark and telling. The August M3 estimate is an annual real contraction of roughly 5.6% versus a 6.6% contraction in July. Thus M3 remains in a strong contraction mode. Batten the hatches, as a big storm is coming, well forecasted!!

◄$$$ THE OBAMA ADMIN IS NOT CONSIDERING ANOTHER ECONOMIC STIMULUS PACKAGE. THEY WILL LATER, WHEN DESPERATION SETS IN. THE NOVEMBER ELECTIONS WILL CAUSE DELAY, CONFUSION, AND DECAY. $$$

The November midterm elections will serve as a time beacon, after which degradation will accelerate in the USEconomy and most financial markets. The White House has announced that no second stimulus is being considered any longer. They need it, but will not give it, due to politics. They do not wish to admit failure in the first stimulus program. They do not wish to worsen the federal deficit. President Obama and his advisers are discussing further tax cuts for businesses to help create jobs, as well as an extension of tax cuts for the middle class. Mention of infrastructure projects is on record once more, usually empty words. Obama is under resilient pressure to take measures that increase US job growth after his vacant $814 billion stimulus plan from February 2009. He has received dismal marks for that ineffective plan, largely viewed as a state budget shortfall stopgap. Debate centers on how many jobs it created or saved, again worthless jabber. Word has come in a growing consensus that Obama listens to his most ineffective and incompetent advisors, and dismisses his best advisors. Christina Romer departed the White House Economic Advisors, discouraged. Maybe she could not work with Lawrence Summers, since nobody has ever been able to. Be clear in knowing that Team Obama has almost zero business experience, like under 5%, when the presidential staff average has been historically something like 35% to 40%. Some destructive agenda might be at work, surely not excellence or professionalism. Think Syndicate promotion of their agenda, for tragic realism. Think survival of the unfittest, and Syndicate wonks.

The Washington Post reported that the business tax cuts could be worth a few hundred $billions. Options under review by the Obama team are a temporary payroll tax holiday and a permanent extension of the Research & Development tax credit. The White House stated, "There have been a lot of reports and rumors on different options being considered, many of which are incorrect. The options under consideration build on measures the president has previously proposed. We are not considering a second stimulus package. The president and his team are discussing several options, as they have been for months, and no final decisions have been made." A very unimpressive approach!! See the Reuters article (CLICK HERE).

◄$$$ BARRY FERGUSON ARGUES EFFECTIVELY THAT THE USECONOMY IS NOT RECOVERING AT ALL, BUT RATHER UNDERGOES A TRANSITION INTO A HORRIBLE STAGNANT CORRUPT BLOATED STRUCTURAL CONDITION. MY VIEW IS A MOVE TOWARD THIRD WORLD, SHORTAGES, HYPER-INFLATION, AND HARSH RULE. WITNESS THE UNFOLDING OF EVENTS FORECASTED HERE OVER THREE YEARS AGO. $$$

Barry Ferguson of BMF Investments produced a thorough diatribe harangue against market interventions, the grievous condition of bloated privileged government, and general criticisms. He does not describe where the nation is heading with the transition, probably No Man's Land. My forecast is the Third World, which will be far more clear in 12 to 18 months. See the Financial Sense article entitled "There Is No Economic Recovery, Only Transition" (CLICK HERE) that summarizes well the painful corrupted distorted national condition going into the abyss. His main points are the following.

1)      The growth of government is a burden, resulting in higher taxes, as $1.2 trillion of the total $14.2 trillion in United States GDP is attributable to the USGovt. That aint progress.

2)      Constant manipulation of markets from the US Federal Reserve, resulting in propped banks, distorted markets, and blockage for anything remotely resembling reform. That aint progress.

3)      Expansion of government privilege and exploitation, with hefty benefits, and a clear shift away from service. That aint progress.

4)      Chronic lies from USGovt statistics, especially with the labor market, so that a realistic picture is hardly ever presented. That aint progress.

5)      Global movement toward a weaker currency, in recognition of national weakness pervasively. He does not mention the Competing Currency War, and thus the strong gold argument. That aint progress.


◄$$$ I.S.M. DISORTIONS HELPED THE FINANCIAL MARKETS A WEEK AGO. ONCE MORE THE AGGREGATE PRODUCED A BETTER PICTURE THAN THE SUM OF ITS PARTS. THE USECONOMIC RECESSION IS MASKED BY LIES. $$$

The Institute of Supply Mgmt numbers for August supposedly came in better than July, flying the face against all the faltering regional index data over the last two weeks. A desperation has set in. The level of economic lies is bolder and more easily detected. The article titles like "Treasurys Decline as US Manufacturing Unexpectedly Grows at Faster Pace" are like from an Goebbels treatise with no basis in truth. The financial markets, investment public, and the public have come to realize that price inflation statistics are absurd distortions bearing no reflection to reality. Price inflation has zoomed at 7% annually for a couple years. The newest deep distortion laden in deception is the Institute of Supply Mgmt. The ISM index has somehow registered a slight increase from July to August, despite almost every single regional index faltering badly. See the careening Philly Fed, from plus 5.1 to minus 7.7 in the latest month. See the Richmond Fed, down several points. Ditto for the Empire State index. The list goes on. Not a single regional index showed gains. The USGovt statistical gamers ignore the weak components and present a distorted aggregate, much like retail sales. See the Bloomberg article (CLICK HERE).

◄$$$ EL-ERIAN OF PIMCO RECOGNIZES THE MANY RECESSION SIGNALS WITHOUT USING THE DREADED WORD. HE SEEMS TO BE SAYING UNDER HIS BREATH THAT THE USFED AND ECONOMIC ADVISORS HAVE NO IDEA HOW TO SPUR GROWTH. HE ALWAYS STOPS SHORT OF URGING THE NATION TO RETURN TO INDUSTRIALIZATION AND STEP AWAY FROM ASSET BUBBLE PRIORITIES. $$$

Mohamed El-Erian, CEO of Pacific Investment Management Co (PIMCO) has cited alarming data that the USEconomy is slowing dangerously. He loses some credibility by mentioning that the recovery is losing momentum, since it never showed any signs of recovery, only response to a series of mindless clunky programs. He sees bad signals. Unemployment is high; consumer credit is in decline; small companies are being refused bank lines of credit. El-Erian openly states that bigger USGovt fiscal programs and additional USFed debt purchases are unlikely to spur a rebound. He said, "Throughout the summer, data signals have become more alarming. Current policy approaches here and abroad are unlikely to deliver a durable and robust US recovery. The equity markets are again under pressure while yields on Treasury bonds have collapsed, reflecting that market's growing concerns about the weak economic outlook." Plain talk by a bright financial professional. He expects home values to fall further as foreclosures increase. Housing is in extremely deep trouble. He cited in a research note a list of action items, such as tax reform, housing finance reform, infrastructure investment, support for education, job retraining, removal of barriers to interstate competition, and stronger social safety nets, which translates to a complete economic revamp, restructure, and rebuild. See the Bloomberg article (CLICK HERE). El-Erian did not mention a return of industry from Asia or China specifically, which would enable legitimate income. He does after all come from the bloated finance sector. An aside from the Natl Federation of Independent Businesses. Their recent survey revealed some ugliness. Those planning capital outlays fell 2% to 16%, a record low. Those planning worker reductions rose 3% to 13%. The report stated "No life in the job market." For every site that claimed credit access problems hurt business, seven mentioned poor sales. The USEconomy is deteriorating.

◄$$$ RETAIL CHAIN SHUTDOWNS ARE RISING BRISKLY. THE CONSUMER CULTURE REVERSAL IS SOON TO ENTER AN IMPORTANT SECOND STAGE, AS A RESTRUCTURE IS FORCED BY THE POWER OF THE MARKETPLACE. SOME POPULAR NAMED CHAINS WILL VANISH. CLOTHING CHAINS ARE WORST HIT. EXPECT SEVERAL STAGES IN THIS SIGNIFICANT CONTRACTION, AS THE CULTURE UNDERGOES A MAJOR SHIFT TOWARD SURVIVAL. $$$

A strong consumer spending downturn has triggered noticeable retail store closures. Some major retailers across the United States are shutting down stores. See big names such as Blockbuster, Winn Dixie, and Abercrombie & Fitch. Second quarter earnings have forced a reaction in most retailers except the high end. The companies plan to close the sluggish stores at hundreds of locations nationwide. The trend is on track to continue for store shutdowns. Abercrombie & Fitch has plans to shut down 60 more of its worst performing stores, including its Hollister stores, by the end of this year, in addition to the 11 since the beginning of 2010. They have selected up to 50 more stores for closings in 2011.

Clothing stores are the most severely hit for shutdown plans. Ann Taylor Stores plans to close 56 stores by the end of this fiscal year. Mens Wearhouse will close 60 of its Tux stores. American Eagle Outfitters will close 28 M&O sites. Charming Shoppes will close up to 120 stores, unless it renews leases with its landlords. All PH8 Bebe Stores stores will close, but with plans to convert some into their discount stores. High end Saks intends to close two stores, following the three it shut this summer. On the grocery line, Atlantic & Pacific Tea will close 25 stores by the end of the third quarter in five states. The company does business under the retail names A&P, Food Basics, The Food Emporium, Pathmark, Super Fresh, and Waldbaums. See the Investor Place article (CLICK HERE).

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