"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
◄$$$ THE NEXT
G-20 MEETING WILL TAKE PLACE IN SOUTH KOREA. THE EMERGING NATIONS (B.R.I.C.) WISH
TO PRESENT A UNIFIED FRONT. HIGH ON THE AGENDA
IS THE UNSUITABLE USDOLLAR AS GLOBAL RESERVE CURRENCY.
THE GROUP PROVIDES STRONG GOLD DEMAND AND IS RELENTLESS
IN UNSEATING THE KING DOLLAR. $$$
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,
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
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
◄$$$ COLLEGE STUDENTS ARE REALIZING DEEP
DEBT BURDENS BEFORE ENTRY INTO THE JOB MARKET.
THEY ARE BANKRUPT OUT OF THE EDUCATIONAL GATE.
PREPARE FOR MAJOR CHANGES COMING WHERE YOUNG PEOPLE
ESCHEW COLLEGE EDUCATIONS, OFFSET BY THE SHUTDOWN
OF MANY UNIVERSITIES FROM HEAVY OPERATIONAL LOSSES.
WITNESS ONE MORE FACET TO THE MARCH TO THE THIRD
Graduating students are drowning in debt right
out of the gate. US college students find themselves
helpless to pay off educational costs. They march
on the Road to Debt Perdition before paid salary
checks. Over $830 billion is owed by US college
students, with an astonishing $3000 added every
second on the clock. For decades, the main
financial baggage for Americans was credit card
debt. Behold a shift, as college student debt
has taken the lead #1 category. Students graduating
in in the last few years have faced the worst
job market in a generation. The majority will
be unable to pay off the record debt. They will
be crippled economic participants, unable to own
a home. They will be forced to declare bankruptcy
in droves. They will join the disenfranchised
in the USEconomy who have lost jobs, lost homes,
lost pensions, and lost hope. Despair is a billboard
trait of the Third World, a place the United States is destined.
Most universities possess endowments. Despite
their funds, some will shut down from heavy operational
losses. Some state supported schools will shut
down from lack of funding. Lower tier schools
without endowments will succumb and shut down.
A sad chapter in American educational history
is soon to turn its unfortunate pages.
ISSUES I.O.U. COUPONS FOR LIMITED USAGE AS LEGAL
TENDER. MANY STATE COSTS WILL BE COVERED BY THE
COUPON PAYOUTS. SO FAR, ONLY STATE FEES AND TAXES
CAN BE PAID WITH THE SAME COUPONS. BUT CHANGES
MIGHT COME TO EXPAND THEIR USAGE AS LEGAL TENDER.
THE BUDGET IS BLOCKED BY A CONSTANT IMPASSE, WHILE
DEFAULT APPROACHES. $$$
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
◄$$$ THE UNIV OF CALIFORNIA
SYSTEM IS GROSSLY UNDERFUNDED IN ITS PENSIONS.
IT SUFFERS UNDER THE WEIGHT OF A $20 BILLION SHORTFALL.
THE NEWS COMES AFTER BERKELEY REJOICED ABOUT ITS SOUND FINANCES. IF ONLY PARTICIPANTS HAD
PAID INTO THE MISGUIDED SYSTEM, THE FUND WOULD
BE MORE FIRM. $$$
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.
◄$$$ 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
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
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
In the last two decades, that chapter was swapped
for a fascist chapter that they so fully endorse.
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
◄$$$ 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
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. $$$
Investors withdrew a net $7.1 billion from
equity funds tracked worldwide in the week ending
August 25th, according to tracker EPFR Global.
They put $5.2 billion into bond funds of many
stripes. The United
States and Europe
are losing momentum. A net $5.4 billion was redeemed
from US stock funds. Inflows into emerging nation stock
markets were the lowest in 13 weeks, as their
bond funds took in $1 billion. US
bond funds drew $2.5 billion. European stock funds
also posted net outflows, taking losses this calendar
year to $15.7 billion. Inflows into emerging market
bond funds continued for a 13th consecutive week,
taking the annual total beyond 300% of the annual
record set in 2005. The previous high in 2005
high was $9.7 billion. Global bond funds are in
position to surpass the record inflow of $47 billion
set in 2009. Great shifts in flow of funds is
occurring. See the Bloomberg article (CLICK HERE).
The 17th consecutive weekly stock fund outflow
was recorded in the United States. This is a major
exodus, not reported, certainly on CNBC. Stock
fund redemptions are actually accelerating. ICI
reports $5.4 billion in stock fund outflows, fully
50% more than the previous week. Year to date
outflows have now hit $54 billion in 2010, as
ever more capital is going into fixed income instruments.
The investment community is chasing bonds, the
next bubble. The experts are calling them safer.
In 2005 and 2006, mortgage bonds were considered
safe. See the Zero Hedge article (CLICK HERE).
The arithmetic is off on the 50%, so refer to
the above EPFR data for clarity.
BUBBLE AT RISK
◄$$$ 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. $$$
Meet the Junkyard of USGovt debt. The United
States compares equally to
the wrecked condition of Greece. In past Hat Trick Letter reports, a chart
was presented that displayed the PIGS nations
of Europe and let the Western nations be placed in competition in two respects,
annual debt and total debt. The US was in the same locus as
PIGS wrecks. The Greek Govt debt is justifiably
rated as junk. The first statistic is the annual
deficit as a percentage of national GDP. It stands
at 13.6% versus the US
at 10.6% behind. Next comes a comparison based
on total funded government debt as a percentage
of GDP. Greece
was higher at 115.1% against 86.5% for the US total. But when the debt of the USGovt Black
Hole extension of Fannie Mae, Freddie Mac, and
the smaller Govt Sponsored Entities is included
in the total, the US
figure soars to 121.6%, more in tune with reality.
The GSEs are indeed completely owned by the USGovt,
under full adoption, heavy cost, deep impact,
and unrivaled brilliant management. The third
comparison is debt as a percentage of government
revenue. The US
fares worse at 358.1% against a total of 312.2%
for Greece. The USEconomic recession will easily expose
the USTreasury debt as deserving of junk status.
Without any rational dispute, USGovt debt should
be downgraded a few notches. Its low bond yields
are not testimony to global acceptance of its
value, but rather of massive monetization and
controlled price, to prevent an implosion. The
pitiful condition of the USEconomy diverts stock
funds to bond funds also. The USGovt deficits
and consequent USTreasury Bond supply is huge,
horrendous, and deserving of Third
World recognition and comparison. In my view,
is better off. They have no military nor security
agency that destroys their nation from within.
See the CNN Money article entitled "Should
US Government Debt Be Rated Junk?" (CLICK
◄$$$ 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
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 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
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
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
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
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 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.
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. $$$
The Chinese Govt holds the largest stockpile
of currency reserves at $2.45 trillion, within
which 65% are held in US$ form, 26% in Euros,
5% in Pound Sterling, and 3% in Yen. Two thirds
of their reserves are invested in US$ denomination,
exposed to its risk, no longer a state secret.
In an open statement, Hu Xiaolian, vice governor
with the Peoples Bank of China, warned that depreciation
of foreign exchange reserves held by developing
countries is a risk. Hu forewarned about currency
instability, depreciation risk, even the implicit
risk of fiat risk. She wrote, "Once
a reserve currency's value becomes unstable, there
will be quite large depreciation risks for assets.
The outbreak and spread of the global financial
crisis has highlighted the inherent deficiencies
and systemic risks in the current international
currency system. A diversified international currency
system will be more conducive to international
economic and financial stability." She
called for greater usage of the Chinese Yuan.
Owning debt and not money as savings, China
bears huge risk from the fiat monetary system.
There is nowhere to hide except gold, silver,
crude oil, commodity stockpiles, and resource
properties. China has signaled
a shift away from dollar assets in recent months,
more an intention than a reality in a bid to diversify.
It has sharply increased its net purchases of
Japanese debt, and has raised its holdings of
South Korean bonds. See the UK Telegraph article
If possible, the Chinese Govt would devote 20%
of its reserves to gold bullion. Even their rapid
aggressive resource acquisition trail is woefully
inadequate. The Western debt structure is too
big. The Chinese savings account is too big. The
available global resources are relatively small
by comparison. China is due for
a massive loss in its reserves, at least in purchase
◄$$$ 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.
◄$$$ 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
Many big global banks hold huge
amounts of toxic assets. They are junk, but their
balance sheets held near book value show them
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.
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.
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.
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.
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.
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.
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.
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.
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
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.
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$10,000
3) Restrict transactions (investments) for gold
4) Confiscate gold in a worst case scenario,
as happened during World War 2
5) Impose capital controls for movement of funds
outside the United States
6) Legislate compulsory daily commercial transactions
to be conducted through debit and or credit cards
7) Make deviations to the above a criminal offense.
My reaction is that his layout of risk and reaction
makes for a very credible picture. The key to his entire argument or warning
is the insolvency of the USFed
and major banks, and the continued decay in mortgage
bonds and mortgage loans, due to falling home
prices. The excess (hardly) reserves of big
banks were essentially demanded by the USFed,
since it is insolvent, thus hiding its broken
condition. A tangent risk is that the USFed
will resign its contract with the USCongress, and no longer serve as central bank. Its services,
if deep losses are suffered, will not be continued.
Their balance sheet is ruined. A risk of USFed
resignation is very real in my view, which would
instantly result in a
USTreasury default. The resumption of vast US$ 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
◄$$$ THE F.D.I.C. SYSTEM IS HANGING BY
THREADS, WITH $13.2 TRILLION IN ASSETS BACKED
BY $15.2 BILLION. THE INSURED BASE OF USBANKS
IS SHRINKING, HARDLY A SIGN OF RECOVERY. THE INSOLVENCY
GROWS WORSE WITH EACH PASSING MONTH. THE SUCCESS
OF THE T.A.R.P. FUND PROGRAM IS EXAGGERATED, AS
SOME BANKS HAVE MISSED PAYMENTS OR DIED. $$$
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.
◄$$$ JPMORGAN SUFFERED A CONVENIENT FIRE
IN ITS HOUSTON OFFICE, JUST
FIVE MONTHS AFTER A DIFFERENT CONVENIENT FIRE
IN NEW YORK CITY. THE PREVIOUS FIRE OCCURRED DURING THE TIME OF IMPORTANT
HEARINGS BY THE C.F.T.C. IN MARCH. HARKEN BACK
TO SEPT 11th OF 2001, WHEN THE THIRD
BUILDING ON THE WORLD
TRADE CENTER SITE COLLAPSED WITHOUT ANY PLANE
CRASH. THE SMALL BUILDING CONTAINED ENRON RECORDS UNDER
THE WATCHFUL EYE OF JPMORGAN. $$$
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
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
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!
◄$$$ THE S.E.C. HAS PROTECTED THE ELITE
UNDER FIRE OF PROSECUTION AND LAWSUIT. OF COURSE,
THE S.E.C. IS RUN BY WALL
STREET PLAYERS WHO TRAVERSE THE REVOLVING DOOR.
ALL FRAUD AND MALFEASANCE CONVICTIONS FROM THE
GREAT FINANCIAL CRISIS BUST HAVE BEEN WITH PEOPLE
OUTSIDE OF SOUTH MANHATTAN.
The Securities & Exchange Commision has admitted
to protecting certain high level executives on
Wall Street from prosecution. A courting document
revealed that Chuck Prince and Robert Rubin were
among the Citigroup officials fully aware of mounting
2007 losses on mortgage assets. The US
regulators (and Wall Street protectors) have blamed
the bank for not disclosing these same losses.
Prince was the bank CEO and Rubin was Chairman
of the Board. Both had knowledge that the highest
rated segments of subprime mortgage backed securities
were the source of $200 million in new losses
in October 2007, according to SEC filed documents
at federal court in WashingtonDC. In July, the
agency accused the bank and two other executives
of failing to disclose $40 billion in subprime
assets before losses grew wild. Both Prince
and Rubin avoided any of these same charges.
The Elite received a pass from prosecution. Rubin
is busy managing his puppets at Treasury and White
House posts, above the law. A $75 million settlement
with the SEC requires a court approval. US District
Judge Ellen Huvelle has formally inquired from
the SEC in August to explain what senior executives
knew before she makes the judgment. The identification
of Prince and Rubin might result in a widened
scope of charges, unless the judge receives a
Syndicate phone call. See the Bloomberg article
STREET GIANT GOLDMAN SACHS FINED 20 MILLION POUNDS
STERLING BY THE U.K.
FINANCIAL SERVICES AUTHORITY. OUCH! THAT IS LESS
THAN KITCHEN MONEY, LIKE COOKIE MONEY. FINES ARE
MOUNTING, ALTHOUGH STILL SMALL. THE GSAX CASE
MIGHT HAVE A LONDON
EXTENSION, IN CURRENT INVESTIGATION. $$$
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
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.
◄$$$ PENDING HOME SALES STILL LOOK MISERABLE.
THEY ARE ACTUALLY AT PRE-CRASH LEVELS SEEN IN
2008. THE USGOVT PROGRAM ACCOMPLISHED NOTHING,
EXCEPT TO OFFER FRESH POWERFUL NEGATIVE MOMENTUM
AS THE VOID HAS BEEN ENTERED. THE HOUSING MARKET
REMAINS THE GIGANTIC MILLSTONE AROUND THE USECONOMY'S
NECK. WHAT LIFTED IT FROM 2003 TO 2006 IS KILLING
IT SINCE 2007. $$$
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
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. $$$
The always excellent economist David Rosenberg
pitched in with a quick report on the broken luxury
home market. It is vanishing nationwide. He wrote,
"The high end market, in particular, is
under tremendous pressure. In fact, it is becoming
non-existent. Guess how many homes prices above
$750k managed to sell in July. Answer: zero, nada,
rien, and for the second month in a row. Only
1000 units priced above $500k moved last month.
That is it! Over 80% of the homes that the builders
managed to sell were priced for under $300k. Just
another sign of how this remains a full fledged
buyers market, at least for the ones that can
either afford to make a down payment or are creditworthy
enough to secure a mortgage loan. Keep in mind
that 25% of the household sector has a sub-600
◄$$$ 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
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.
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
home prices and the citizenry 12% unemployed.
Painful tax and fee increases are due to hit.
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.
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
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
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
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
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
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,
◄$$$ THE OBAMA ADMIN IS NOT CONSIDERING
ANOTHER ECONOMIC STIMULUS PACKAGE. THEY WILL LATER,
WHEN DESPERATION SETS IN. THE NOVEMBER ELECTIONS
WILL CAUSE DELAY, CONFUSION, AND DECAY. $$$
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
◄$$$ BARRY FERGUSON
ARGUES EFFECTIVELY THAT THE USECONOMY IS NOT RECOVERING
AT ALL, BUT RATHER UNDERGOES A TRANSITION INTO
A HORRIBLE STAGNANT CORRUPT BLOATED STRUCTURAL
CONDITION. MY VIEW IS A MOVE TOWARD THIRD WORLD,
SHORTAGES, HYPER-INFLATION, AND HARSH RULE. WITNESS
THE UNFOLDING OF EVENTS FORECASTED HERE OVER THREE
YEARS AGO. $$$
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"
that summarizes well the painful corrupted distorted
national condition going into the abyss. His main
points are the following.
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.
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.
Expansion of government privilege
and exploitation, with hefty benefits, and a clear
shift away from service. That aint progress.
Chronic lies from USGovt statistics,
especially with the labor market, so that a realistic
picture is hardly ever presented. That aint progress.
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.
◄$$$ I.S.M. DISORTIONS HELPED THE FINANCIAL
MARKETS A WEEK AGO. ONCE MORE THE AGGREGATE PRODUCED
A BETTER PICTURE THAN THE SUM OF ITS PARTS. THE
USECONOMIC RECESSION IS MASKED BY LIES. $$$
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
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
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
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