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Jim Willie CB, editor of the “HAT TRICK LETTER”

Use the above link to subscribe to the paid research reports, which include coverage of critically important factors at work during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

Many observers to the wild gyrations, deep contortions, extreme measures, and other bizarre activity in the government and banking arenas are suffering from severe confusion. The public is alarmed, even frightened, by the sequence of events, without much benefit of comprehension of what is happening or which clans are in control. The degree of deception hit a peak during the TARP Fund creation and disbursement, done behind private closed doors for the replenishment of sacred preferred stock, that bridge between corporate bonds and stock equity. The deception hit a very high pitch with the financial titan failures, the entire string of them. It has never stopped since. The economic data and promising forecasts (mere marketing group propaganda) featured Green Shoots, Jobless Recovery, and the totally vacant Second Half Recovery that is useful every initial six months to sway the ignorant masses. Just what is happening is difficult to describe succinctly. But the main description reads like an obituary. The most recent and visible distortion is not of price inflation, which has zoomed at 7% annually for a couple years, but rather the Institute of Supply Mgmt. The ISM index has somehow registered a slight increase from July to August, despite almost every single regional index faltering badly. See the careening Philly Fed, from plus 5.1 to minus 7.7 in the latest month. They ignore the weak components and present a distorted aggregate, much like retail sales.

The US banking sector died in September 2008. It has not acted like a credit distribution apparatus in two years. The US Federal Reserve has served almost the complete function, filling the gap like with the decaying commercial paper market. Its several dozen liquidity facilities testify to its urgent need to act as banking system substitute, since the real portion lies in the morgue. The major 100 banks in the US are almost without exception insolvent, and thus do not lend. Sure, they boast a positive book value, but only after given permission to use phony FASB accounting rules. They can declare their assets at any value they wish. In fact, on many debt securities, they actually declare unrealized losses as gains. See the Credit Value Adjustment scheme, an utter travesty and shameful practice mocked by accounting professors. The FDIC came out this week to announce the Q2 list of problem banks went from 775 in number to 829, from Q1. Hardly evidence of a recovery. The USEconomy suffers from a credit strangulation since the banking system at the upper levels is dead, simply stated. The main thrust of the limp activity is monetary creation, banker welfare, absurd programs, and war spending. The more money the clownish hapless awkward leaders throw at the problem, the more the Gold price will rise. Each quantum policy step lifts the potential Gold price another $1000 per ounce.

This article is an attempt to briefly describe what is happening to the United States, from an aerial perspective, regarding the foremost poorly told events, better description of critical event factors, the lost generation of industry, the official investment by the USGovt in profound failure, the confusion from broadening collectivism, the absence of a solution toward restructure and remedy, and what actual solution might include. The popular debate once centered on the banks too big to permit a failure, but that debate became distracted by the flow of events. Only liquidation of the biggest banks can enable a recovery, period!! Of course, the process is complicated, especially politically. Actually, it is more than political, since the big banks control the USGovt. The response reaction from gold & silver will give loud messages to systemic failure, as money is wasted, invested in failure, and directed to the elite troughs. One can argue that no remedy or restructure is even attempted!!

REAL STORY BEHIND FOUR FAILURES

The Bear Stearns episode was the prelude to the failure story, the opening act, the clue for the death of the US banking sector. Its story was a mere partial truth, one that avoided all the inner circle rivalries and hate relationships. The firm did not participate in the general rescue program for LongTerm Capital Mgmt in 1998. It was singled out for execution, a kill at a later date. The Bear Stearns failure was a murder execution for its long gold position and short USDollar position, if truth be told. Wall Street never enjoys or benefits from telling the truth. Deception is its calling card. The Gold price was prevented from finding a much higher legitimate value, from continued control after Bear Stearns was removed from the clique.

The American Intl Group episode was disguised from its true nature as a Goldman Sachs bailout. In fact, the record has been somewhat clearly told that the AIG nationalization enabled GSax to be first in line for credit default contract redemptions, at full price. They saved $11 billion in the nationalization and butting in line. There are advantages to acting as the USDept Treasury administrator. Many other big banks had favorable redemptions on similar insurance contracts. The wreckage of the entire US banking sector was thus covered up from the insurance perspective, preventing a credit derivative blowup. The Gold price did not react from a failure motive, as much as a perceived systemic risk motive. The over $100 billion in covered losses to AIG so far is just the beginning of investment in failure. The USGovt is managing the credit derivatives from under its rickety broken rotten wing. But Gold does react to the waste of money, the debasement of money, and not so much from inflation entering the system. That comes later.

The Fannie Mae episode was one best described as averting either a mortgage bond default or a severe jump in mortgage rates emanating from the sewage treatment plant. In pulling off the nationalization of the wretch, the Wall Street controllers thus placated a crucial angry mortgage creditor. China had been selling all summer long in 2008 its Fannie Mae and other GSE bonds. China forced the USGovt hand as they made it explicit from nationalization. Rumors had been flying in late 2007 and early 2008 that China was accumulating USAgency Mortgage Bonds as part of some contract toward colonization. No more! The USGovt guarantee was implicit but soon made more explicit. The $170 odd billion in covered losses so far is just the beginning of investment in failure. But Gold does react to the waste of money, the debasement of money, and not so much from inflation entering the system. That comes later.

Lehman Brothers was an unwilling sacrificial lamb for its prominence in the mortgage arena. They were an important player that got in the way. The Lehman killjob created a dustup distraction in which JPMorgan was funded $138 billion in a grand reload with USGovt money, to maintain its commodity stranglehold. They were running low on funds to defend the system and to keep America strong, the envy of the world, the beacon of hope. Also, Lehman owned a significant silver position that had gone out of control, in danger of being the object of a critical short covering event that would have rendered huge damage to JPMorgan. Therefore, JPMorgan took it over and assumed its responsibility. They drove the silver price down from $19 to $10 in the ensuing months, with no objection, criticism, or suspicion of impropriety from regulators, legal authorities, or anybody residing in South Manhattan. However, the Silver price returned to face the same $20 level, which it will easily overcome and penetrate in the next few months. Smart investors bought the silver offered at discounted price for several consecutive months.

INVESTMENT IN FAILURE

For vivid indications of failure, notice the slide into recession even after 20 months of near 0% official interest rate. The USFed has no more weapons except the Printing Pre$$, which it will reluctantly use, perhaps somewhat aware of the dire immediate consequences. Central bankers are soiling their skivvies, in utter fear. For vivid indications of failure, notice that the housing sector and commercial property sector do not respond to record low mortgage rates. The average 30-year mortgage rate across the land stands at 4.40%, silly low but uselessly low. Refinance is not an option, given the valuation declines in loan collateral. The ultimate problem is insolvency laced like cancer throughout the entire system, from housing, to households, to banks, to government fiscal situation, even to industry (long gone). The USFed cannot treat insolvency. Only liquidation can. The human toll has been great, from chronic joblessness, to mortgage delinquencies, to home foreclosures, to lost pensions, to vanished financial security. For vivid indications of failure, notice the 2.5% to 2.6% long bond yield in USTreasurys, the last bubble. The US bankers who have run the land for two decades have run out of asset bubbles to blow. Each growth period of 5 to 7 years has been driven by the next asset bubble in sequence, not industrial development or output. Money is being ruined at a rapid rate, and precious metals indicate the pace and severity. As the great bond bubble dissipates from whatever pinprick, the gold rally will move from quiet bullish to monster bullish, complete with a skyrocket event. In the next phase, do not be surprised to see the Gold price rise over $100 on a single day. The financial networks will be bug-eyed and speechless.

Plain language works best at this point. The USGovt, as demonstrated by its nationalizations, big bank rescues, grand aid packages (car industry), and support of extreme measures, has invested heavily in failure, fraud, and banker elite welfare otherwise called pillage. They also has invested in sacred wars at great cost. The USGovt has not invested much at all in business, jobs, family, and life. The flimsy shallow vacant home loan programs exemplify the lack of support and aid for the public. In fact, an argument can be made that the government and banking leadership (tightly twisted together) have contempt for the People. The current administration features a return of failed policy makers, as seen in Robert Rubin, the modern day Rasputin in control of puppet strings. His past failures qualified him for near total banking policy control. As a result, the public harbors growing resentment from the inequality of bailouts and benign neglect to households. The failure to individuals is stark with pink slips and job loss. As long as weekly jobless claims exceed 450 to 470 thousand, nobody will give much credence to any USGovt verbage about a recovery. Failure is in the wind.

GOLDEN RESPONSE TO FAILURE

The failure pertains to the US financial sector in its entirety, from banking system to credit market. The failure is exacerbated by wasted expenditures toward what are called rescues and stimulus, but is actually banker welfare payouts, their toxic bond redemption, and nationalization of failed entities. Worse, the key nationalized firms are laced with $trillion fraud. Fannie Mae remains the central clearing house for several $trillion fraud schemes. In the wake of failure has come round after round of badly spent funds. It is hard to call it money when it pours off the Printing Pre$$ without recourse, without disclosure, and without accountability. Naked bond shorting, failures to deliver bond sales, and extreme interest rate swap enforcement made for a witch’s brew of grand market interference, ruin, and fraud. A prevailing sentiment persists. The consensus lunatic misguided notion is that when the volume of stimulus and rescues is sufficiently higher than a certain threshold level, that recovery follows, especially after a certain period of time. Almost no thinking takes place. The leaders are simply throwing money at the problem and crisis, responding to the next critical focal points. Never has policy been so absent, misguided, and bereft of the thought process. We are witnessing a syndicate in survival mode, in a desperate quest to save the system they exploit so thoroughly.

In response, the Gold price potential rises as USGovt funds are wasted without any path to remedy or recovery. The extreme usage of the Printing Pre$$ in the next round of Quantitative Easing, dubbed QE2, will set up crippling explosions. Each round of stimulus or bank rescue or Dollar Swap Facility setup actually puts the potential Gold price another $1000 higher. The future years will see at least $3000 Gold price, all in time. The 1980 peak Gold price, adjusted by an accurate price inflation accounting, like the Shadow Govt Statistics series, is more like $7000 per ounce. My $3000 forecast figure is a conservative number. Anyone who disputes and challenges this forecast, must provide evidence that remedy, restructure, and reform are anywhere present in the current landscape. They are not. Money is being created and wasted at a colossal pace, and while it is wasted, the Gold price in increasingly debased US$ terms rises.

Favorable upcoming months for the Gold price are finally upon us, especially September. We are at its doorstep of a strong season. A major upward thrust is likely as a holiday present before January. The pattern is even stronger with silver. The month of September is especially strong, almost twice as much gusto packed into it as any other month, the next being December and January. In a five-month stretch, three of the 12 best months are lined up, directly ahead. Last year, the 2009 gold price jumped from $950 to $1200 between late August and end December. Expect something similar this year. Also, institutions like the JPMorgan monster queen might face a date with the guillotine in their silver trading desks. If the ultra-strong seasonality for silver does not catapult its price over $20 by January, it will be a big surprise.

SUPERIORITY OF GOLD AMONG COMMODITIES

Prepare for a breakout in the Gold price, fully forecasted, fully forewarned. A tremendous upleg move comes. The consolidation between the $1065 and $1250 prices has taken nine months. The range between $1175 and $1250 has been tighter in the last two months. A big move is indicated, as the seasons offer a firm wind from behind. Notice the MACD crossover, as moving averages are aligned nicely, but calmly, certainly forcefully. A global recognition of monetary system breakdown is in progress. The QE2 launch, complete with further ruinous debasement of money, is imminent. The unexpected effect that will take inept myopic central bankers off guard is the powerful rise in the Gold price. It foretells of the next powerful phase of the financial crisis that has been covered in detail in the Hat Trick Letter, gory detail. Dan Norcini, the gold, currency, and commodity analyst, put it so well. He said, “What we are witnessing is the death throes of a debt based monetary system, of which those presiding over it apparently have come to believe their own delusions. The US public is learning what our grandfathers learned as a result of the Great Depression. Debt is something to be avoided, not heaped up and accumulated… Yet, all of this is lost upon the monetary lords who have their noses so close to the ground sniffing out the scent that they cannot see that the path ahead leads off the edge of an abyss, from which there is no escape.”

The Gold & Silver charts are both bullish, but in different ways. Gold is lifting off a base, while silver has surged upward out of a pause pattern, as described last week. Distrust for the monetary system has gone global. Gold & Silver are accepted as reserve assets, the best safe haven not tied to counter-party debt risk. Watch the Gold/Oil Ratio, which is poised to rise noticeably. Gold is the commodity king, namely it is money. The worldwide recession will keep the crude oil price subdued until the USTreasury bubble pops. Then, at that time, several major commodity hedges will jump in price, rendering a cost shock to the USEconomy. It is broken to the core, broken at the foundation, broken from grotesque imbalances, broken from vast pervasive insolvency. An inflationary depression lies dead ahead! Notice the recognition of Gold, its distinction as the king of commodities. The usual accepted hedge against the USDollar in Wall Street and London accounts has traditionally been crude oil.

After the severe damage done to sovereign debt in Europe, a wave comes steeped in crisis. Governments erroneously believe that they can inflate their way out of the crisis that has roots firmly connected to debt inflation. This is folly, as they will learn. Notice the King Gold, which is out-performing crude oil. The Gold/Oil Ratio has turned up strongly since the spring months. Deflation Knuckleheads will find they made serious analytic errors, when they grouped King Gold with the commodities. What folly. Gold is money, and money is becoming scarce. The current monetary system is debt in denominated form. The ratio will rise toward 20:1 in the coming months. The USEconomy in struggle, clear deterioration, even possible collapse, will keep the energy prices down generally. The global monetary virus outbreak will lift the Gold price to the heavens.

FROZEN REACTION FROM POLICY

Much of the business sector is frozen. Executives and managers are frozen in inaction from inability to anticipate what comes next. The landscape of regulations and official programs is too rapid, unpredictable, and illogical. We see stupid stuff like Clunker Car Programs. We see disruptive stuff like the Health Care Program. We see unpredictable stuff like the Home Purchase Credit Program. We see uncertainty, like with the home tax credit return. The biggest obstacle to business seems to be the Health Program monstrosity. It forces higher costs upon businesses while officials claim the exact opposite. Nowhere is the confusion greater than the housing and mortgage finance markets. Investors are front running the bond trade, with anticipation of USGovt monetization of more USTreasury Bonds and more USAgency Mortgage Bonds. The prospect of QE2 has brought about a perception that lower mortgage rates could come, and continue to come. The business sector cannot readily hire in this uncertain illogical environment in flux, where leadership is constantly being questioned. The home buyer demand was drawn forward, leaving a late summer and autumn vacuum. See the 27% decline in existing July home sales. The investment community is buying the USGovt guaranteed bonds, ahead of the QE2 launch. Investment in business equipment and capital formation is nearly non-existent. The USEconomy is frozen by erratic policy. In fact, the Gross Domestic Product is negative, once 3% is subtracted from the official downward revised 1.6% growth in 2Q2010. The subtraction is required for entrance into the world of reality, where hedonic and other productivity fudges must be removed.

A GENERATION OF LOST INDUSTRY

This is not a lost decade upcoming. The United States has suffered an entire generation of lost industry from its systematic dismantling, forfeit, and abandonment. The migration of industry began with Japan and the Pacific Rim in the 1980 decade. It continued in the 1990 decade, along with the NAFTA experiment with Mexico. Those border factories were removed with the advent of China. It culminated in the 2000 decade, with the death blow from the Chinese industrial expansion, often dubbed the Low Cost Solution. The entire generation, especially since the Chinese climax, replaced US factory income with service sector income, which included the finance sector from mortgage processing, credit derivatives, leveraged structured finance, and other financial engineering vehicles & structures. The emphasis on clean industry and sophisticated economical development was nothing more than a deceptive billboard to conceal the near total devotion to and dependence upon inflation for economic growth, which backfired and killed the system. The financial engineering offered no legitimate advancement to the society, and certainly not to the USEconomy, except the automatic teller machine, an observation made by former USFed Chairman Paul Volcker. His tenure was ended by the way, as a result of vicious rumors of a cancer debilitation, completely false stories spread by proponents of Alan Greenspan, a syndicate priest of high order. The Greenspan Era justified the virtues of risk offloaded in credit securities, hailed the sophistication of the system, and heaped praise upon each other’s priests, right before the system collapsed from a flimsy and fraudulent foundation, leveraged inflation engines, and absent industry.

THE SOLUTION IS SIMPLE

The secret to a legitimate solution is easy. The big banks must write down their credit portfolios, and accept deep losses. If that results in liquidation, so be it!! Accounting fraud is not a substitute for restructure. Nor is dispatching badly impaired assets to the USFed, whose by all accounts is a Bad Bank Repository. Debate continues on the need to create a bad bank for dead assets, when the USFed is precisely that bank. Toxic assets held by the big banks must be liquidated. The phony propped credit markets must be permitted to fail, and to find proper value via equilibrium processes. Nowhere is equilibrium sought, as everywhere it is avoided. The USGovt should exit and quit the game of stimulus, intervention, and market distortion. The USGovt is delaying the inevitable. The financial markets should seek their bottoms for clearing supply. The bank leaders must be liquidated, removed from power, and face some prosecution. The Too Big To Fail premise must be rejected. The Zombie Big Banks threaten the entire system. If truth be told, they control the leadership of the USGovt itself. Dead entities control the USGovt, lodged in a stranglehold!!

CONSTIPATION WHEN NO LIQUIDATION

This is remarkably simple economics analysis. Without substantial liquidation of the badly impaired assets held in tremendous volume within the big banks, further credit constipation will be the mainstay fixture. That asset clog includes the vast bank owned properties from home foreclosures. The REO count rises about 50 thousand homes per month, a figure roughly double from the January level. Without major liquidation initiatives, expect continued Zombie Big Banks cluttering space. Without major liquidation initiatives, expect continued demands from the Zombies for large tracts of money. Without major liquidation initiatives, expect continued $trillion fraud schemes with Fannie Mae as nexus. Without major liquidation initiatives, expect escalated growth of the USTreasury Bond bubble. In plain terms, the economic landscape and credit system cannot recover without the plowing under of the Big Banks. However, they control the USGovt, its finance ministry in the USDept Treasury, and the USDollar Printing Pre$$ itself. The big banks will NOT order their own death warrant, and face the financial gallows. To think otherwise, even for the national good, is folly. It is like asking a heavily armed bank thief in the middle of a crowded lobby, holding a few dozen hostages, to shoot himself in the head instead, for the good of the people. The credit engines of the USEconomy will not fire much at all unless the big banks are liquidated, or at least much of their balance sheets is liquidated. That would expose their deep insolvency and potentially lead to their failure. A run on those banks by depositors, and a ruinous sale of their corporate bonds by investors, would ensure the big banks death. They belong in the morgue, for the national good. Capitalism demands their plowing under to unleash hidden potential.

The ball & chain dragging down and keeping down the big banks is the housing market. The downward force of gravity is visible in the falling home prices. The deteriorating USEconomy still pulls down the monetary platform, as the credit portfolios are directly attached to the ball & chain. The USEconomy was given the appearance of growth from the housing bubble between years 2002 and 2006. Its asset bubble formed a foundation for the majority of the USEconomy, and whose accompanying mortgage finance bubble provided the liquidity to the system. In fact, the entire boom & bust served as vivid indisputable evidence that the home is not a tangible asset, but rather a financial asset, an abused asset. The mortgage foreclosure process is the final proof. The true tangible assets are crude oil and precious metals. Other commodities will be sacrificed in wholesale form in order to purchase energy and precious metals. Energy is needed for commercial survival, while gold is needed as bonafide safe haven for money.

GOVT DILEMMA

The USGovt finds itself managing a mangled menagerie of frozen fixtures, most of which are totally broken. It is the great investor in failure and fraud. Its actions cover up the fraud, from policy taken in full collusion. Should the leaders give orders that result in formal suicide ceremony of the big banks, a US version of harikari? Should the props be removed and force a USTreasury default? A default will occur anyway in my view, since it is only delayed. The USTreasury default will come as a result of trade war isolation, USDollar vicious cycles in USGovt deficit monetization, a massive sudden USDollar devaluation, or the USFed resignation from its Congressional contract amidst $1 trillion losses. Expect all the above in combination, each linked. The USFed already has compiled close to half a $1 trillion loss on its balance sheet.

A grand game of chicken by the USGovt and Wall Street control panel is taking place. All official plans are predicated upon an economic recovery in the United States. A great fan blows fake acidic money into the bankers trough, but the monetary system erodes as its pillars suffer continued gradual deep damage. The new debt, delivered as fresh paper, acts like acid on the capital base of the entire USEconomy. As described in previous articles, the United States possesses the worst economists in the world. They have no concept of capital formation, no concept of what constitutes money, no concept of legitimate income, and no willingness to liquidate the toxic assets that prevent a restructure and recovery. The big hairball in the system is the big banks. The American public cannot survive on a limited credit diet due to big bank hairballs clogging the system.

HEIGHTENED RISK OF USTREASURY BUBBLE

A growing risk is palpable of migration away from USTBonds. It could come very soon. After the housing & mortgage twin bubbles and consequent bust, the last asset bubble has a little more ways to go. The last asset bubble is the USTreasury Bond, the entire complex. In fact, the bubble extends to the Fannie Mae bonds as well, since under USGovt guarantee. Perhaps a 2.0% long bond yield will be the sentinel signal to abandon and sell, setting up a bond bust. An extreme risk is present for the next important event to frighten the horses that prop USTBonds. What will be the rattlesnake in the sand? Foreign creditor sales in volume? A ramped up trade war? Harsh criticism for improper USDollar printing in monetization schemes, finally in the open? Recognition of a $1 trillion tab in war spending? A river of hyper-inflation is lodged in the USTBond dam, whose walls are nothing more than paper reeds held together by bad verbal glue, uttered by bank leaders who increasingly lack credibility.

Witness the failed central bank franchise system, and USFed Chairman Bernanke without any tools left. Witness the systemic failure of the USEconomy (and Mexico too). All USFed recovery scenarios depend upon a USEconomic recovery, which itself is completely dependent upon a US housing market recovery and a US banking system recovery. No recovery will come, since no Big Bank liquidation will be permitted. Therefore the USFed will walk the pirate plank to a great death of insolvency and ruin, which will spawn a USTreasury default, my forecast made two years ago. It is more certain than ever before. The safe haven is gold & silver. The USTreasury Bond grand dissipation, the long bust process, will catapult the Gold price toward $3000, and suddenly. The gold community will find great amusement in watching the reaction to the naysayers and critics, except the world will change into something hardly recognizable. It will turn into an ugly version of Mad Max, the movie. Shortages and crises will abound. Chaos will reign. A form of darkness will befall the earth.

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Jim Willie CB is a statistical analyst in marketing research and retail forecasting.   He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at  www.GoldenJackass.com. For personal questions about subscriptions, contact him at  JimWillieCB@aol.com

home:  Golden Jackass website
subscribe:  Hat Trick Letter
Jim Willie CB, editor of the “HAT TRICK LETTER”

Use the above link to subscribe to the paid research reports, which include coverage of critically important factors at work during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

History is being made. The American public has never been no nervous, perhaps fearful of something dreadful and imminent. The global monetary system is crumbling. The typical stimulus has failed to jumpstart the USEconomy. The 20 months of near 0% short-term official interest rate has failed to revive the moribund US housing market. The phony FASB accounting rules has failed to accomplish anything except a stay of execution for the big US banks, which do not lend much. In fact, the US banks are largely dead entities showing enough life for to receive USGovt largesse aid. Witness the failure of the US financial sector. Witness the climax chapter of failure for the Fascist Business Model. The US banker brain trust, which possesses only a modicum of economic wisdom, analytic prowess, or foresight, finds itself in a desperate corner. Their talk of an Exit Strategy in the last several months was summarily dismissed as nonsense, propaganda, and wishful thinking by the Jackass here on a consistent irrefutable basis. The US Federal Reserve is ready to embark on the second round of Quantitative Easing. The monetization of US$-based bonds of many types will be done on a second initiative, on cue. Here is the irony, the stupidity, the insanity, the recklessness, the tragedy. What failed, they will do again, maybe even bigger! At risk is global confidence and trust, hardly a zero cost item.

The urgency of the QE2 Launch will be made quite clear by the Hologram Leaders occupying positions of power, after they digest the latest housing data. The July existing housing sales fell by 27.2% in a single month. The July new home sales fell by 12.4% in concert. Few analysts operating with USGovt service badges anticipated that the empty-headed home buyer credit of $8000 would rob forward sales and leave an autumn vacuum in home demand. It did. Check out the silver price, which touched $19 today on Wednesday. And at $1240, the gold price is poised to make new highs any day. My near-term targets are $23.5 for silver and $1300 for gold. Energy prices are soft but precious metals prices are strong. Think heterogeneity!

The QE2 is pure cancer within the monetary body. Foreign creditors are walking away, making distance from the USTreasurys, and especially the USAgency Mortgage Bonds. The USFed and USDept Treasury are therefore being isolated. Their USTreasury auctions are often disguised failures, but with the benefit of a falling US stock market, the bond demand has risen. The cancer of QE2 cannot be emphasized enough. My forecast a few months ago was for NO Exit Strategy implemented. The USFed balance sheet will NOT be reduced. Interest rates will NOT be permitted higher. My forecast was for an embarrassing About-Face in policy, and a hasty desperate announcement and implementation of a powerful new round of Quantitative Easing. We are seeing it unfold, exactly as forecasted. In fact, my call is for ZIRP and QE, the cancerous twins of Zero Interest Rate Policy and its Printing Pre$$ twin, to become permanent residents of the White House and USFed, an incredible pox, blemish, and badge of shame to the nation. The twins scream rot and ruin.

These shills and carnival barker policy makers need a fresh new education. The two most important indicators in my book are continued home foreclosures and renewed rising jobless claims. The rest of the forecasting challenge is remarkably easy. The nitwit barkers prefer to focus on inflation expectorations, encouraged by the wondrous USTBond rally. What nitwits, unable to read simple signals! What charlatans, pretenders to the thrones! What heretics, ignorant of economic principles! See the August special report that criticizes, exposes, and castrates the clueless cast of American economists. The latest revelation was the $120k payment to Frederic Mishkin for writing about the “Financial Stability In Iceland” in March 2006 whose title was changed to “Financial Instability In Iceland after Iceland collapsed. Mishkin did no research, almost admitted as much in an ugly exposure to these clowns operating in economist suits. See the Zero Hedge video (CLICK HERE). My contention is that Mishkin has no economic skills, and does not understand what money is, just like many on the Federal Reserve Board, whose misguided brain stems extend to most regional governors. Mishkin appears in this instance to be a bonafide whore. One exception might be Hoenig, who has warned of the perils of new monetary expansion. He recently said, “I wish free money was really free, and that there was a painless way to move from severe recession and high leverage to robust and sustainable economic growth, but there is no shortcut.” Hoenig of the Kansas City Fed has emerged as an ideological rival to Bernanke. Hoenig might soon need to be ousted for lack of patriotism and obedience to the fascist throng.

Let me make a paradoxical point: THE UNITED STATES WILL BEGIN A RECOVERY WHEN THE TOO BIG TO FAIL BANKS ARE PLOWED UNDER. They are blocking remedy and restructure. They are resisting liquidation of badly impaired assets. They do not lend money, as their credit engines are broken, since they are dead entities that occupy space in the US financial sector. They cast large long shadows. Their removal from the scene of the crime would surely light a fuse of credit derivative accidents, the likes of which the world has never seen. Let’s try THAT experiment!! Why the leading economists cannot see that credit is down since the big banks are dead is beyond me. One might regard the conclusion is too ugly to contemplate. The entire US financial chapter since 1996, when Greenspan proclaimed irrational exuberance had taken hold of the land, has been ugly, perverse, and ruinous. The nation had its chance to right the US Ship of Financial State in 1987, and instead chose to produce, nurture, encourage, justify, and bless as good a sequence of asset bubbles, while the industrial base was dispatched to Asia. The USEconomy thus replaced legitimate income with grandiose debt sources, followed by national insolvency.

GOLD & SILVER DIVERGE FROM COMMODITIES

The impact from the cancer and desperation of QE2, the next undermine of the USDollar (and other major currencies), can be seen in the price of Gold. Better yet, watch the price of silver, whose price movement has actually been leading gold upward. This week, for the first time in perhaps a decade, silver defied the industrial metals and economically dependent energy sector. Silver is money. Both copper and crude oil fell in price, but silver rose strongly. By the day’s end, gold was pulled up by silver. And this happened on a week that features options expiration, which usually sees a strong naked short pounce by JPMorgan, of course to make America strong and liberty exportable. Witness the beginning of outright visible lost control by the syndicate.

Watch the Gold/Oil ratio, which is poised to rise noticeably. Gold is the commodity king, since money. The galloping recession will take down the crude oil price, as demand falls. The natural gas price fell 3% just today on Wednesday. Hedging against the USDollar risk aside, the energy prices have been weak. By contrast, the gold price has risen from direct demand in response to monetary system risk and lost confidence in that monetary system. The global revolt against the USDollar continues quietly. The government bonds are gradually being considered trash backed by yet more bad paper dispensed by government approved printing houses. My analysis has long pointed to the advantages of silver over gold. Gold fights the political wars, but silver rides in on a shiny white glowing horse to win most gains. The supply factors favor silver. The demand factors favor silver. The shortage is acute for silver.

Again, basic economic thought process not within the mental caverns of US economists. The desperate action to launch QE2 will be quite evident in the coming weeks. It will even become a national priority. The bankers and politicians will rush to destroy whatever credibility remains in the USDollar, or any fiat paper currency. The challenge to banking leaders will be to conceal their desperation and panic. They have had no options or alternatives for almost two years, now painfully evident. The impact of the launch will be extremely damaging to the prestige of the USFed in general and Chairman Bernanke in particular. He has not understood much of any events, surely has proffered a string of errant views and obtuse forecasts. Witness the discredit of the central bank franchise system. Fiat paper money is dissolving before our eyes. Notice the assaults on sovereign debt in Europe, a trend which will hit the US shores, all in time. Economists do not expect it, since the American bankers possess the Printing Pre$$. They will be blindsided by Gold, which pulls the carpet from under the US$-based foundation inside its very structure. The Gold bull market will outlast the USTreasury Bond bubble run. The key word to be heard in the next few months will be CONFIDENCE, as in the absence of it when viewing the US financial helm.

The Powerz in charge will choose inflation over any combination of reform, restructure, and replacement of the helm. A recovery could have possibly been in our grasp, maybe in the future after much pain from adjustment. Unfortunately for the bankers in unchallenged power, the respect, prestige, and faith in the US Federal Reserve will fade like a sea mist after the QE launch. Its christening will be done in deep shame with a bottle of acid. The level of respect is approaching rock bottom, the lowest in decades. Even Alan Greenspan expects slippage and sputters as the housing market resumes its powerful decline. The next recession for the USEconomy could very easily result in a USTreasury default. Scenarios for precisely such a default are mapped out in the August Hat Trick Letter.

IMMINENT GOLD & SILVER  PRICE MOVES

Gold & Silver are entering the most favorable season of the year, autumn. Big gains should be expected. Signals are omnipresent for substantial price gains. Shortages exist and are profound. Demand is on the strong rise on a global basis. Lost confidence and faith in the fiat paper system is slowly vanishing. It would be nice to see the investment community add to positions and put on new positions before the breakout, not afterwards, and be more successful. The return of the USEconomic recession and the simultaneous QE2 Launch will mark a major turning point for gold & silver. Fear is on the rise. The precious metals offer an alternative to conventional nutball strategies, a successful one. Check out the track record for gold, the best asset in the 1990 decade. That fact is not mentioned or cited much by the financial press networks. Their sponsors object.

MANY SIDES OF MONETARY CANCER

Cancer is a strong word. It conjures up images of internal broken functions, nasty growths, blockage of organs, twisted lives, pain, and death. Yes, that sounds right for describing the USDollar and its flagship the USTreasury Bond, with the accompanying destroyer in Fannie Mae. The word cancer fits perfectly. It has brought a removal of US industry. It has brought a wave of bond fraud centered upon mortgages. It has brought endless war, paid by foreigners. It has brought insolvency to US households. It has brought insolvency to the US banks. It has brought a tumor of REO homes seized by foreclosures and put the US bank balance sheets. It has brought a bloated wrecked USFed balance sheet. It has brought chronic $1.5 trillion USGovt deficits. It has brought a mass of Food Stamp recipients. It has brought Wall Street control of the USGovt finance ministries. It has brought a Black of Hole of tainted money. It has brought diverse toxic bonds. It has brought blockage of any independent audit of the USFed assets or activity. Yes, that qualifies as the many sides of cancer.

Consider the next new cancerous faces of the Quantitative Easing. They new policies and features will be so ugly as to reshape the entire American landscape. They will do to the US financial and economic pastures what the Gulf of Mexico oil volcano did to the Southern Shores. These concepts are covered in the August issue of the Hat Trick Letter in greater detail. They are bizarre complicated concepts. They strike dead the heart of US capitalism, and offer a unique brand of fascism and collectivism as a result, with an overtone of desperation. They paint a path toward systemic failure. At the end of that bitter road and death march is the USTreasury Default event, forecasted by the Jackass in September 2008. It earned ridicule, but soon will earn respect, like several other important past forecasts. The path was clear almost two years ago that the US banking system died that month. The obituary cited Lehman Brothers, Fannie Mae, and American Intl Group as pall bearers. The banking system death is undeniable to the enlightened. It will soon be clear enough to the masses after the next leg down in housing.

1) Stiglitz urges another USGovt stimulus program. The last one was hollow. The next should be lackluster and meager, but maybe more on the mark. True reform and broad liquidations are pre-requisites, as they will not be done for preparing the economic topsoil. Bankers will block it. Expect USGovt “beans & rice” handouts rather than conditions for job creation. They should really try capital expenditure immediate writeoffs and job creation tax credits instead, with a slew of obtrusive federal regulations swept aside. Too much capitalist wisdom with such ideas. More ineffective wasteful federal programs and misdirected altering of parameters on the control panel will only aggravate the effect of the QE2 Launch, a typical preface.

2) Former Treasury Secy Rubin argues against a large scale stimulus plan, and instead for deficit reduction. This economic Rasputin presided over the removal, lease, and sales of the national gold treasury. He led the deregulation movement that opened the door to profound bond fraud. He sat on the Citigroup board when it expanded recklessly into many domains, resulting in the wreckage of the corporation. That qualified him to serve as mentor and chief puppeteer to Geithner and Summers, who run the USDept Treasury and White House Council of Economic Advisors. Clearly, Rubin has a different agenda. A constant state of sluggishness might work best for Rubin. He advocates deficit reduction as his main priority, and proclaims a goal of restoring confidence. The nation is way past deficit reduction concepts, but should focus rather on collapse avoidance. Confidence can be restored, and better economic performance enabled, only if the current Elite banks are plowed under, much of their impaired assets are liquidated, Goldman Sachs is removed from control of the USDollar altogether, and stern prosecution of colossal criminal bond fraud occurs. That would produce confidence.

3) QE2 will be more cancerous than QE1, as full dependence upon monetary inflation will come. The official interest rate cannot be reduced. QE2 will produce three major effects, all ruinous. All debt is subject to coverage by new money, all to be eligible. Next comes hyper-inflation, as confidence in all things paper evaporates and a great tipping point is breached. The arrival of QE2 will produce three major effects. A) The reliance upon new money growth to monetize rapidly growing debt in the US financial system will undermine all things US$-related. The continued artificial support of the USTreasury Bonds will transfer risk to the USDollar. B) Whatever respect and prestige in the USFed will vanish quickly. The bravado of helicopter drops will seen hollow, amateurish, and invite mockery in the open among respected brain trust. C) The smartest people in the room will begin to declare that the current global monetary system is irreparably broken, and that past and future response, even if amplified, will be doomed to fail. We are on the doorstep of hyper-inflation.

4) The FDIC will soon launch what could grow into a vast securitization initiative. It is better described as the QE2 from the rear guard, not well noticed. Since broke, the FDIC has resorted to selling packaged credit assets from failed banks in order to raise cash, new securities with USGovt guarantees. Apparently, viable banks are harder to find for buying much of any assets. The FDIC two years ago served as an investment banker harlot for Wall Street acquisitions. Then it became a matchmaker, finally a liquidator, now a bond issuer. All the while the Deposit Insurance Fund runs more negative each month. Be sure that the Printing Pre$$ of monetization is behind the scheme, no longer well disguised, since the FDIC is so closely aligned with the other engineers of bond management within the USGovt (see Fannie Mae). The FDIC bond securities are more monetization.

5) Mortgage relief might be the destination for the next mammoth monetary expansion. The StLouis Fed was permitted to leak the story. James Bullard of the St Louis Fed wrote a breif white paper entitled “Seven Faces of The Peril” in he urged the USFed should immediately restart the purchase of USTreasurys if the deflation scenario takes deeper root, as in QE2. He correctly concludes the high risk of a Japanese-style deflationary outcome in the United States. Next came the speculation by both Morgan Stanley and Merrill Lynch in their concurrent release of analyst reports. They surmised that Fannie Mae and the Federal Housing Admin might be preparing an imminent launch of broad sweeping initiative. The proposed plan would feature an instant automatic refinance program for troubled mortgage loans. It would take millions of borrowers to current market rates overnight. It would stop short of reducing the loan balances of under-water mortgages, those suffering negative equity. In the process, $46 billion of consumer savings per year would be created, from basic reduction of monthly payments.

6) The loan modification pathways will possibly be expanded, maybe meaningfully. Operations have expanded whereby fraudulent home loans have been warehoused in Fannie Mae, under the USGovt roof and aegis for two years. Even the bankers might give pressure to revamp home loans in a skein of modification plans, in reaction to widespread non-payment from strategic default. A major challenge must be dealt with. They must avoid the close examination of massive mortgage bond fraud for at least $2 trillion on home loans. Such scrutiny might uncover a multi-$trillion Fannie Mae clearinghouse of fraud that links several major fraud schemes. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to the failed fat duo Fannie & Freddie, pledging an unlimited credit line. The sewage treatment plant will surely devise more clever projects to handle the toxic waste, since very large liquidity plumbing is promised.

7) QE2 will feature Fannie Mae rental homes, a new vibrant toxic business. Except a major blemish will build further, as defiant non-payment of mortgages will flourish, from strategic voluntary defaults. Look for Fannie Mae to gather in hundreds of thousands, even millions of broken mortgages. They will attempt to build a business subsidiary of the most queer type. An ulterior motive is to bail out big banks but not reveal doing so. A desperation is sinking in with USGovt proposals, perhaps in direct response to open fear of civil disobedience. Consider that 250 thousand Bank of America mortgage holders are paying nothing on self-driven strike actions. My forecast made in 2004 and 2005 was for the advent of a bizarre perverse Fannie Home Rental program. Now we see people forfeit title to their homes, lose their equity, but remain in the same home as renters making small monthly payments. The housing market would prevent the dumping of properties on an already bloated housing market. The Fannie Mae investors could have earned a dividend from rent payments, except that FNM stock issues were de-listed. Homeowners are increasingly not making monthly payments, daring the bank to foreclose on the property, challenging them to produce the property title. In many cases, the banks cannot produce the title, because the MERS database is a nightmare of spun spaghetti. The courts have ruled MERS has no legal standing in any foreclosure displacement of occupants. Rumors swirl with gathering strength and persistence. The USGovt might soon take over all failing home mortgages, and have their titles signed over to the USGovt. Then people would lease the properties to the people who occupy them according to pay scales, in collectivist fashion consistent with the presidential ideology.

THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.

From subscribers and readers:

At least 30 recently on correct forecasts regarding the bailout parade, numerous nationalization deals such as for Fannie Mae and the grand Mortgage Rescue.

“You have the unique ability to sift through the mountains of disparate economic data and hearsay and weave them into a coherent compelling storyline. The amount of unbiased factual information you provide is unparalleled in the industry (and desperately needed in these scary times). I love your no holds barred approach to dealing with the narrow minded purveyors of dis-information in the industry.”

(BobA in North Carolina)

“I think that your newsletter is brilliant. It will also be an excellent chronicle of these times for future researchers.”

(PeterC in England)

“Thanks for the quality of the information you put forth in your newsletter. I read a lot of newsletters, blogs, and financial sites. The accuracy of your information has been second to none over the past couple of years.”
(MikeP in Missouri)

Jim Willie CB is a statistical analyst in marketing research and retail forecasting.   He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at  www.GoldenJackass.com. For personal questions about subscriptions, contact him at  JimWillieCB@aol.com

Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

Double Dip used to pertain to ice cream cones, but now to dreaded return to economic recession. Green Shoots used to refer to gardening projects, then to deceptive economic viewpoints. My favorite is the second half recovery mantra, indicative of totally clueless. This year’s promised recovery in the second half of the year will feature a return to recession instead, thus stripping mainstream economists of any remaining credibility. The endless links in the chain are impressive by the clueless cast of economists that disgrace the US landscape. The chain of ignominy includes gaping blind spots, blatantly wrong forecasts, minimized ignitions that spread crisis, misguided focus on goofy indicators, outright removal of important indicators, sloppy deception of monetization efforts (see last week’s article), clumsy justification of Wall Street welfare, backwards perception of Too Big To Fail banks, and lying before the USCongress. The nation is dominated by fools who profess the lasting benefits of ‘Hand to Mouth’ approaches like tax rebates, purchase credits, jobless insurance extensions, and helicopter drops. Their worst investments are their biggest investments, like Fannie Mae and AIG nationalizations travesties. Harken back only to last winter, when economists were talking about a second half recovery, running all the red lights and stop signs. Then they shifted the klapptrapp to claims of a jobless recovery, which should evoke laughter from its impossibility. The economic counsel has forgotten what capital formation means, while they prepare for their next tourniquet to be applied to hemorrhages. The objective of monetary policy and banking policy is not recovery, but instead very clearly to retain power.

DUMBEST GUYS IN THE ROOM

Pay homage to the dumbest guys in the room. Tip the hat to morons at the helm. Genuflect to the high priests of failure. The cast of economists in charge, if truth be known, includes Robert Rubin in the background as Wizard of Oz. He pulls the strings with his puppets Tim Geithner from the Treasury Secy post and Larry Summers from the White House Council of Economic Advisors. Neither puppet has anything remotely resembling a successful banking or economist resumé. Bring in USFed Chairman Ben Bernanke who has no business experience, a few key regional Fed Presidents, and you have the dumbest guys in the room. They might as well read tea leaves, tarot cards, chicken bones, and animal entrails. If they had any skill whatsoever, they would notice the nasty economic signals delivered by basic data. Take some examples. Check federal income tax withholdings from payrolls, state sales tax receipts, trucker miles logged, total volume of electricity usage, and food stamps. They all scream recession for the USEconomy. Merely pointing to stimulus funds, state budget plugs, liquidity programs, mortgage redemptions, and expanded central bank balance sheets totally miss the mark on effective economic craft. Their blindness to the economic distress is only exceeded by their disdain and contempt for the public. Before long it will be illegal to be wealthy unless a card carrying member of the financial syndicate that wields tyranny.

GOLDEN CHAMPAGNE FOR THE QE2 LAUNCH

Before launching into graphic exercises, bear in mind that for 18 months, the United States has operated with a near 0% official interest rate. As forecasted a full year ago, the 0% rate has become a permanent fixture, since this is NOT a normal credit cycle. My open disrespect and criticism has been directed at the short-sighted gnome occupying the USFed Chairman post, who babbled moronically about an Exit Strategy a few months ago. My rebuttal claimed that no such exit from the current 0% strategy is available to the Bernanke, and more grand monetizations were to be come. Now we see no exit strategy door is offered, rather a stuck condition as the USFed has painted itself in the corner. A close inspection of the trap door under which Ben sits has staircase attached to it, the Third World.

Talk has returned of a renewed Quantitative Easing cycle. The monetization engines in full usage would be put on stage in full view. The Bernanke track record is nearly perfect, nothing correct on forecasts, no effective outcomes, steady focus on the silly measures, lies given to the USCongress. The benefit to the financial syndicate on Wall Street is the only priority of monetary policy makers. The USFed and USCongress are are stuck, forced to curtail an explosion of money for political reasons. Unfortunately for the USEconomy, the recession that will turn from the steady decline into a galloping decline at a time when the USFed cannot lower interest rates. The USFed is out of tools except massive monetary inflation. Imagine, 18 months of 0% has done nothing to jumpstart the growth of the nation. The USGovt is saddled with annual $1.5 trillion deficits, that do not cause much alarm anymore. Why should it? Nothing has been done in financial reform, bank asset liquidation, financial audit of the major banks (including the central bank), business regulation streamline, tax relief, end of endless war, reduction of lobby influence, Goldman Sachs stranglehold of the USDept Treasury, or anything else that truly counts. During this next downturn, the policy failure will be more obvious, the failed central bank franchise system will be more obvious, and the ruined currency system will be more obvious. The absence of policy options will be more apparent to all. Only dispensing printed money will be offered in response. The failure of 0% to produce a revival is indirect proof that easy money was the cause of the banking collapse and credit crisis, and therefore cannot serve as the main tool toward remedy.

David Rosenberg is one of several rare economists with adept skill and razor sharp focus who is not fooled by the mainstream drivel. He recently wrote, “You also know it is a depression when a year into a statistical recovery, the central bank is still openly contemplating ways to stimulate growth. The Fed was supposed to have already started the process of shrinking its pregnant balance sheet four months ago, and is now instead thinking of restarting Quantitative Easing.” He is too much a gentleman to call Bernanke an idiot or hack or tool or faculty groupie. When QE2 is launched, the confidence in the Bernanke Fed will hit rock bottom. The pain will be delivered to the USDollar and USTreasury Bonds, which by then will only have buyers from the Printing Pre$$ output. Even Bill Gross of PIMCO shows doubt that the current course will avert a Double Dip recession.

Jim Grant joins the chorus of the enlightened within the financial industry, as he expects another powerful round of monetary easing. He is confident of QE2 right around the corner in a second launch. Ambrose Evans-Pritchard seconds the opinion. They see how the temporary lull in extreme monetary inflation tied to the economic stall leave the USFed only one choice, more Quantitative Easing. The first round involved $2.5 trillion. Ambrose Evans-Pritchard expects the next round to be coordinated $5 trillion global initiative. Vast monetization of debt and sustained stimulus & rescue with phony electronic money backed by debt are the only options left to central bankers, fast out of tools, naked on stage. Endless crutch support is their constant refrain, their glory epitaph. When money is again openly printed with utter abandon, under official blessing, that is bad for the monetary system. USEconomic decline will worsen from the assault on legitimate capital. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold. The next QE2 round will send the Gold price to $2000 amidst a totally new darkened atmosphere of broad systemic failure.

FALLING MONEY SUPPLY PARADOX

The money supply continues to careen downhill fast. Its growth has plunged to a pace last seen in the 1930 decade. The broad money supply has remained elevated greatly, as the USFed still holds huge bank reserves used lately to maintain some USTreasury demand. Despite mammoth monetary inflation and outsized banker welfare programs, the money supply decays at the Main Street level. The fiscal and monetary experiments have failed before our eyes. The first Quantitative Easing initiative failed to turn the tide; so they will do another. The Adjusted Monetary Base rose from $880 billion in summer 2008 to a peak $2200 billion at the end of 2009, then down to a little over $2000 billion through June 2nd, according to the St Louis Fed. The aggregate stock of money declined from $14.2 trillion to $13.9 trillion in the three months ending April, making an annual 9.6% rate of contraction. Such a negative signal almost always means economic recession, a signal ignored by economists. The broad measure in the M3 money supply is contracting at an accelerating rate within the USEconomy, despite near 0% interest rates and the biggest monetary profligacy and fiscal extravaganza in modern history.

The Shadow Govt Statistics folks do a sterling job, including upkeep for the M3 statistic that the USGovt discontinued in 2006. Notice the M3 in the chart (in thick blue), an index in a plummet. Money is not moving within the USEconomy with gusto. Businesses are not expanding. Workers are not spending with confidence. Construction is heading toward a standstill. Credit is not being extended, as banks distrust borrowers almost as much as fellow banks who are trying vigorously to dump toxic bonds of all stripes. When the M3 goes down, that is bad. USEconomic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.

WEEKLY LEADING INDICATORS

The ECRI and the Conference Board (slightly more prestigious) each run their leading economic indicators. Below is the Weekly Leading Indicator by the ECRI, not in decline but something much worse. The plunge of the WLI means that various measures are looking bad that relate to future increased job growth from increased business investment and increased economic activity. The current WLI is in a nosedive since May 2010. It stands at a lower level than the autumn months of 2007, when the USFed and the majority of US-based economists missed the last recession. They were very busy back then denying the powerful impact of the mortgage crisis. It was not limited to subprime mortgages, but rather, as the Jackass warned, it turned global in an absolute bond crisis that affected all types of bonds, from sovereign to commercial to junk to municipal. When the Leading Indicators drop, that is bad. USEconomic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.

NEXT LEG DOWN IN HOUSING DECLINE

The end to the home buyer tax credit has resulted in a sudden collapse of pending sales. The USCongress threw a hollow bone to the buyers, with minimal and temporary impact. Price always obeys the Supply & Demand dynamics, eventually. Home prices will fall again, despite the propaganda of stability achieved. Stability is not a function of time or money thrown at the wall to see how much sticks. The National Assn of Realtors reported in June that its seasonally adjusted index of sales agreements for existing homes dropped a whopping 30% in May from April, falling to 77.6 from 110.9. The May mark was the lowest dating back to 2001, an indisputable signal of resumption to the housing sector bear market. Home loan refinance demand also fell hard despite near record low mortgage rates under 5%. The USEconomy growth from 2002 to 2006 was built upon the housing bubble and mortgage fraud expansion. My forecast in 2007 and 2008 called for near total destruction of the US banking system, an endless housing bear market, and grotesque homeowner foreclosures amidst rampant insolvency, all of which occurred. Next comes another economic recession downleg. When the home sales crash, that is bad. It results in lower housing prices, like night follows day. USEconomic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.

Bear in mind that in 2001 and 2002, the moronic cast of economists were all abuzz over the benefits of the Low-Cost Solution from dispatching the US industrial base to China. The Jackass was not fooled, but rather regarded the move as a 5-year warning of US systemic collapse. Economists missed that signal completely, a simple signal in my view. My forecast at the time was for economic plague and bank system ruin, as soon as the housing market bubble turned course toward a bust. From 2003 to 2006, the Greenspan Fed along with a parade of deviant economists gave blessing to the USEconomic expansion. However, it was built upon the shifting sands of a housing bubble. Dr Housing Bubble puts it well, claiming a real estate Frankenstein was created with a mind focused on the perverse notion that it actually constitutes the economy. The pending home sales are in a plummet. They foretell of falling home prices. The mountains of unsold bank repossessions from foreclosures, properties held in bank inventory, assure a continued home price decline. Low mortgage rates under 5% are doing nothing to revive the housing market. The entire real estate market is broken, without recognition. The appraisal process has entered the picture, laden with foreclosures and short sales (price below seller home equity). Appraisals are the bridge that acts like a noose around the neck, attached to a two-ton brick. The appraisal process has halted thousands of sales in the pipeline. The housing decline is set for a powerful resumption, rendering additional damage to the USEconomy which depends so tragically upon it, rather than industry. The decline merely took a pause, aided by a tax credit. When the home price decline resumes, that is bad. USEconomic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.

GLUT IN BANK OWNED PROPERTY INVENTORY

The monitor RealtyTrac reported last month over 300,000 foreclosures for the 15th straight month. The May total foreclosure filings rose to 322,920 which is 1% above May 2009. The bank owned property tally meanwhile is skyrocketing. Banks are reluctant to dump inventory on the already bloated housing market, but they are giving up. The Real Estate Owned (REO) inventory hit a record for May and April, with 93,777 properties repossessed by bank and mortgage firm lenders, an increase of 44% from May 2009. All 50 states posted annual increases in REO activity. In no way whatsoever will housing prices rise in such an environment of overburden in bank owned property held on the balance sheets. The REO bulge is the #1 current factor that eliminates any chance of a housing price recovery. When the bank owned property inventory rises, that is bad. Zombie banks are bad. USEconomic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.

LOUSY COMMERCIAL FOREFRONT

Commercial property defaults are dreadful and growing exponentially. Witness the crucial sector sheltered from the news for two years. The Hat Trick Letter has consistently warned about the hammer hitting for that entire period of time. Commercial loan portfolios have not been written down for losses yet, even though the property values have plummeted. Rollover refinance loans in the commercial sector are next to impossible anymore. So the banks extend terms and turn into darker zombies that approve fewer loans. Commercial real estate (CRE) is the next tragic chapter in the bursting bubble. Its prices have already fallen by 42%. At peak just three years ago, commercial RE values in the US reached $6.0 to $6.5 trillion. The banks are crippled. Parallel to zombie homeowners with negative equity, are commercial fields creating zombie businesses. The Extend & Pretend actually harms the banks in the future, since the loss would be less if suffered today, bigger tomorrow. Almost no political will exists to bail out the enormous commercial market. Wall Street does not own their debt, PERIOD. Bank failures, mostly small and regional, have increasingly been tied in recent months to commercial portfolio exposure, as much as residential. Politics enter from a negligence standpoint, unwilling to save the consumption craze. When the commercial mortgage delinquencies rise, that is bad. When a bank carries impaired loans and cannot lend, that is bad. USEconomic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.

JOBLESS CLAIMS, THE FESTERING WOUND

The end to emergency unemployment coverage acts as salt on the wounds, although it seems merciful EUC extensions are to be improved. An uptrend in jobless claims is in the making. Jobless claims stubbornly maintain above the 450k weekly level, showing no improvement, soon to rise. The weekly jobless claims provide ample evidence of economist ignorance of their craft, defiance of reality, and a lame forecast for a second half recovery. Persistent unemployment somehow serves as powerful evidence of no USEconomic recovery. Many conclude that the USEconomy is at risk of a freefall zone with government blessing, if not neglect, except for a politically unpopular extension. In the balance lies the insured basic income at risk of the loss by $5 billion per month. People are declaring bankruptcy at record numbers still, as their situations are aggravated by home foreclosure. The July Hat Trick Letter shows many details on the labor front and household front. When the people remain out of work, that is bad. When they file for bankruptcy, that is bad. USEconomic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.

THE M.E.R.S. OPEN DOOR TO CIVIL DISOBEDIENCE

The mortgage fraud industry suffered another major legal blow. The Mortgage Electronic Registration Systems (MERS) is an overly clever property title database. MERS was again was permitted zero legal standing, this time by California. Homeowners can often flaunt the banks and not pay, without risk of being expelled from their homes. The public is pulling off strategic defaults more often, and simply defying banks on an increasing basis. The potential for successful civil disobedience, Henry David Thoreau style, has never been more ripe. Already 250 thousand Bank of America mortgage holders are not paying anything in monthly payments. The US Bankruptcy Court for the Eastern District of California has ruled that MERS cannot transfer a note (home loan mortgage) for want of ownership. MERS has proven to be the point of extreme legal vulnerability for corrupt Wall Street fraud kings. It was originally designed to track the property titles, put them in a national database, and facilitate the brisk sales between parties of mortgage bonds tied to those titles that constitute the income stream from monthly loan payments. The courts have ruled consistently that MERS has no legal standing and cannot serve as the lever that removes a person from the home via foreclosure. Again MERS holds the titles, but MERS has no legal standing to transfer the home loans in the foreclosure process. The importance of the string of negative court decisions (State Supreme Courts) is significant in permitting home mortgage owners to defy the banks, not make the monthly payments, and remain in their homes without fear of foreclosure and removal. Details of the case can be found in the July Hat Trick Letter report. When people stop making mortgage payments, that is bad. Banks retaliate, and that is bad. USEconomic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.

THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.

From subscribers and readers:

At least 30 recently on correct forecasts regarding the bailout parade, numerous nationalization deals such as for Fannie Mae and the grand Mortgage Rescue.

“You have the unique ability to sift through the mountains of disparate economic data and hearsay and weave them into a coherent compelling storyline. The amount of unbiased factual information you provide is unparalleled in the industry (and desperately needed in these scary times). I love your no holds barred approach to dealing with the narrow minded purveyors of dis-information in the industry.”

(BobA in North Carolina)

“I think that your newsletter is brilliant. It will also be an excellent chronicle of these times for future researchers.”

(PeterC in England)

“Thanks for the quality of the information you put forth in your newsletter. I read a lot of newsletters, blogs, and financial sites. The accuracy of your information has been second to none over the past couple of years.”
(MikeP in Missouri)

Jim Willie CB is a statistical analyst in marketing research and retail forecasting.   He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at  www.GoldenJackass.com. For personal questions about subscriptions, contact him at  JimWillieCB@aol.com

Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

A significant feature of fiat money systems is the privilege for the custodian to commit fraud, big fraud, gargantuan fraud, even counterfeit. Fannie Mae might function as the clearinghouse for numerous massive role programs with $trillion fraud behind each, hidden from view, especially since it was conveniently nationalized. Follow some other fraud schemes, right out in the open. Surely such recount only touches the surface, but these shenanigans are advanced forms of fraud. They are smoking guns of USTreasury fraud and counterfeit, with strong whiffs of monetization. Much more monetization is to come, fully endorsed and sanctioned. Other clever techniques are being used, given the Quantitative Easing has officially been halted. A close look reveals that Excess Cash Reserves at the USFed are being drawn down, which are thus funding the USGovt deficits in the last couple months. Ironically, such reserves held by big banks at the US Federal Reserve were the only thing preventing vast insolvency. Now that cash is being used. Details can be found in the July Hat Trick Letter reports. The data is right before us. Bring the trails and tallies to the table, and it looks like a grand racket worthy of any sophisticated syndicate. Evidence is compelling, and grand motive for foreign creditors to reject the USDollar with all of its active Dollar Dons. When recognized monetization destroys the last vestige of trust and confidence in the USDollar, when more official rounds of sponsored Quantitative Easing arrive, the USDollar will be on a downward spiral. In fact, all major currencies face the same prospect of vast monetary expansion. They will all fall sharply in value, and by counter-effect, the Gold price will skyrocket.

CHINESE WARNING SHOTS ACROSS THE BOW

This story is a gem. The Chinese Dagong credit agency made an inaugural splash with a debt downgrade of the USTreasury Bonds. They called the US-based trio of debt rating agencies politically biased, an under-statement. The Dagong agency used its first splash into sovereign debt to establish a bold standard of creditworthiness around the world, giving much greater weight to wealth creating capacity and foreign reserves than Fitch, Standard & Poors, or Moodys. They also pay attention to rapidly escalating debt levels. The Chinese Govt has coordinated their strategy, selling off short-term USTreasury Bills, but hanging onto a large raft of long-term USTreasury Bonds. On a net basis, the Chinese purchases have hit a plateau.

Meanwhile, with distracting commentary, China has doubled its gold holdings. At least the Chinese Govt thas promised not to use their foreign reserves as a weapon. What a relief!! And Wall Street promises no more bond misrepresentation, no insider trading, no more fraud, no more drug money laundering (see Wachovia & Wells Fargo). What a relief!! The USGovt strives for clarity about management of China’s $2.5 trillion in FOREX reserves, the world’s largest. It contains $868 billion in USTreasurys at last count. The growing fear is that, in anger over trade friction, or in disgust over horrible USDollar management, or from a response to discovered hidden USTBond monetization, or with ambition to displace the US from its catbird seat, China could dump USTreasury Bonds with a vengeance. The credit market analysts justifiably call it the Nuclear Option. The Beijing officials have given veiled warning to reduce the USGovt deficits and to put aside thoughts of another Quantitative Easing. The next QE2.0 comes as sure as night follows day. The message is written on the wall, that the United States has forfeited its sovereignty with rampant debt production rather than industrial production.

USTREASURY ISSUANCE EXCEEDS USGOVT DEFICITS

This story is a gem. USTreasury bond issuance exceeds even the gargantuan USGovt deficits. The gap is $1.5 trillion over four years. One could guess that Wall Street is selling bonds and squirreling the money in foreign banks, a basic counterfeit in a syndicate operation. The operation might bring new meaning to monetization. At least a parallel exists. The majority of home mortgages have their income stream used in more than one mortgage bond. That is the real reason why home loan modification is a thin farce. The MERS database conceals the game, but the public has the satisfaction of knowing that MERS has no legal standing. The state courts are declaring no legal standing, and foreclosure procedures are blocked as a result. People cannot be removed from their homes when the database is used in handoffs of notes and titles.

Under Goldman Sachs rule, the USDept Treasury is running some bold kind of racket game, whose purpose is unclear, except clearly that it aint honest. The USGovt borrowing through debt issuance was $142 billion more than the June USGovt federal deficit, which means they are doing more than financing the deficit. They are funding a syndicate. In chronic fashion, excess issuance has been the pattern, as the USGovt has issued $1.5 trillion more in debt securities than its budget deficit in the past four years. During the past 45 months, the USGovt has accumulated an incremental $4.7 trillion in new debt, but the federal budget deficit has grown by $3.2 trillion, much less but still a mammoth amount. Nobody asked why so, and nobody asks where the bond proceeds go. One is left to speculate that a vast bold new syndicate technique is simply selling bonds beyond newly formed debt, stealing the funds as proceeds, and tucking the bonds in foreign locations for syndicate usage on rainy days or retirement days. The June USGovt official budget deficit was logged at $68.4 billion. During the same month, the USGovt borrowed a staggering total of $210.9 billion. These are not refinances of USTreasury debt in rollover. On a consistent basis, the USGovt has borrowed much more in each deficit month than was required to close the deficit and finance the debt accrued. The differential of excess debt issuance for the first six months of 2010 comes to a hefty $290 billion, a pattern in continuance.

Perhaps the US syndicate maestros figure that with large numbers, nobody will notice, or given the hidden monetization, they might as well put the bond presses in hyper-drive. The cumulative data, as well as the mindboggling differential (dotted line) between the two series is shown on the attached chart. Perhaps it is for war funding far in excess of the stated costs, to save embarrassment and questions. Perhaps it is for enormous vertically integrated business investment in Afghanistan for industrial processing of poppy into heroin. Perhaps it is for the heavily rumored underground cities under construction for elite resident purposes. Perhaps it is extra costs for additional new military bases scattered across the globe. Perhaps the answer is simpler, in that it is just being counterfeited and stolen by the financial syndicate led by Goldman Sachs that controls the USGovt financial ministries, and operates criminally with full impunity (except for meager fines). My sincere belief is that all the above are part of the destinations for the money. This is a smoking gun.

ENGLAND BUYS $170B USTBONDS FROM SAVINGS ???

This story is a gem. The Chinese dump USTreasurys and England accumulates them. Or more accurately, the USFed hides its vast monetization efforts in the United Kingdom account ledger item. No way to the reasonable man can Britain purchase $170 billion in USTreasurys in five months from legitimate sources of savings!! In May 2010, China reduced their USTreasury holdings by $32.5 billion, now the lowest level since June 2009. China shed $35.4 billion in short-term USTBills, offset by a mere $2.9 billion in purchased USTBonds. Furthermore, Japan reduced holdings in USTBonds, as did the OPEC nations. However, buyers could be found, all Anglo descent, at least on the surface. The total foreign USTreasury holdings rose from $3957 billion to $3964 billion. Attribute the good tiding news to gigantic ongoing accumulation by England, just like the last several years. The UK-based buying is highly suspicious, like a neighborhood crack house purchasing a swimming pool, but arouses no attention except by intrepid analysis divorced from Wall Street or the USGovt, the bicameral syndicate. Generally, the United States financial system suffered a dramatic decline in May as foreign purchases of US assets hit a wall, falling from $110.3 billion to just $33 billion. See the graph of steady Chinese unloading of USTreasurys in the last several months.

As of end May, China still holds a gaggle of USTreasurys, but their USTBill holdings are down to a trifling $7 billion, as China sells into the confusion, especially at high principal prices tied to near 0% yields. China is selling the bubble. Without any question whatsoever, the USFed and USDept Treasury are using the United Kingdom as a ledger item for their mammoth USTreasury monetization, all barely hidden, with the TIC data used as a tiny fig leaf to obscure a bulging protuberance. The story receives no mainstream attention. The United Kingdom has wrecked banks, staggering deficits, no trade surplus, yet managed to buy a whopping  $28 billion of USTBonds in just the month of May. Seems like Printing Pre$$ operations and London serving as the Hidey Hole. At end 2009, as of the December tally, the UK owned $180.3B in USTBonds, yet somehow managed to accumulate in the new year, up to the current $350.0B. THE UK SUPPOSEDLY HAS ALMOST DOUBLED THEIR HOLDINGS IN A MERE FIVE MONTHS!!

Bear witness to the shadow USFed debt monetization operation, operating out of the United Kingdom, or at least its accounting. The hidden USTreasury Bonds reside in England. If truth be known, this is where the owners of the USFed reside. Anyone who accepts the following graph on its face is a blatant moron, a bold huckster for Wall Street, or a dimwitted employee of government.

Bear in mind that we are talking about crippled England here, or the United Kingdom more generally. The UKGovt just announced spending cuts to reach 40% of budget, not the previous 20%. Britain could not cope with an extended episode in the credit crisis, according to the Bank For Intl Settlements. Yet this nation gobbled up $170 billion in USTreasurys from ripe savings in five months?? Hardly. The Bank For Intl Settlements has warned that sovereign debt under siege cannot adequate be relied upon as the coupon for broad national financial rescue and stimulus, not again, not in the next round. The UKGovt is admitting openly that the situation is worse than they said before. Newly ordained Prime Minster David Cameron ordered the officials to draw up 40% cuts, the biggest in history. He has ordered cabinet ministers to draw up a Doomsday budget whose essential service spending cuts could see tens of thousands given pink slips. Yet this nation gobbled up $170 billion in USTreasurys from ripe savings in five months?? Hardly. This is a smoking gun.

In the summer 2008 leading up the the Wall Street death experience, the British suffered their own shameful episode with Northern Rock, Royal Bank of Scotland, even the venerable Lloyds of London each succumbing, no longer breathing life in a solvent sense. They are all broken, just as broken and insolvent and wrecked as the biggest US banks, all Zombies. Billions of pounds were spent in nationalizing the Royal Bank of Scotland (partial), Lloyds Banking Group (partial), and Northern Rock (total) in an attempt to prevent their collapse. Neither the UK nor the US is on any path of reform or restructure. London redeemed failure from a real estate bust, which is the absolute opposite of investment or stimulus. Yet this nation gobbled up $170 billion in USTreasurys from ripe savings in five months?? Hardly. This is a smoking gun.

USGOVT HIDEY HOLE IN “HOUSEHOLD” CATCH-ALL

This story is a gem. Eric Sprott of Sprott Asset Mgmt casts a suspicious eye at the USTreasurys for the so-called Household category in their accounting. It is a blatant ledger item for illicit monetization, a veritable crime scene without the yellow tape. Sprott directs his accusations like a skilled prosecutor. He reinforces the claim of Ponzi Scheme cited by Bill Gross of PIMCO. Sprott calls the solution to finance the mammoth USGovt deficits to be the actual problem, namely hidden monetization. The Hat Trick Letter is in perfect synch with his line of reasoning and accusation, as the “Household” accounting ledger item is the culprit. This item has been the topic of past Jackass focus and analysis. Data in bloody detail is offered in his indictment. Sprott points out that in order to balance the budget for fiscal 2009, the USGovt needed to sell $2041 billion in new debt, equal to three times the new debt that was issued in fiscal 2008. Witness the grand rampup without identified sources of buyers, mythical buyers in official USTreasury auctions, fraudulent accounting on the official books. No purchasing groups could could afford to increase their 2009 USTreasury purchases by 200%, a simple conclusion. So by process of elimination, the monetization source arises most visibly, but he shows where it appears in the accounting.

In the latest USDept Treasury Bulletin published in December 2009, ownership data reveals that the United States increased the public debt by $1.885 trillion dollars in fiscal 2009. That much is clear. According to this report, there were three distinct groups that increased their purchases from 2008 levels. The first was “Foreign & International Buyers” which purchased $697.5 billion worth of USTreasury securities in fiscal 2009, a 23% rise from fiscal 2008. The second group was the US Federal Reserve itself. Their published balance sheet reveals an increase in its USTreasury holdings by $286 billion in 2009, a 60% annual rise. Consider that jump to be a direct result of the official USFed Quantitative Easing program announced in March 2009. Quick summaries cover the other groups. Q1, Q2, and Q3 data from 2009 suggests that the State & Local Govts and US Savings Bonds groups were net sellers of USTreasurys in 2009. Then the pension funds, insurance companies, and depository institutions increased their purchases by only a paltry amount. The remainder was purchased by a category called loosely “Other Investors” as a catch-all. This other group purchased $90 billion in 2008, but then jacked up in extreme hyper-drive its purchases to $510.1 billion of freshly minted USTreasury securities so far in the first three quarters of fiscal 2009. On an annualized rate of purchase, the catch-all category is on pace to buy $680 billion of USTreasurys this year, over seven times the 2008 level. So the murky vague “Other Investors” saved the day and financed a gargantuan amount of the USGovt deficit.

Go to the source. The USDept Treasury Bulletin identifies “Other Investors” as consisting of Individuals, Government Sponsored Enterprises (GSE, as in Fannie Mae & Freddie Mac et al), Brokers & Dealers (who sell as intermediaries), Bank Personal Trusts & Estates, Corporate & Non-Corporate Businesses, Individuals, and Other Investors. It is far-fetched to believe parties in these groups had $700 spare billion to invest in the USTreasury market in fiscal 2009. Sprott dug deeper, and found the source in the data. The Federal Reserve Board of Governors Flow of Funds Data provides a detailed breakdown of the owners of USTreasury securities to 3Q2009. Within these parties, the GSE group acted as small buyers of a mere $5 billion this year. Brokers & Dealers were sellers of $80 billion. Commercial Banks were buyers of $80 billion. Corporate & Non-Corporate Businesses collectively were buyers of $11.6 billion. Add these cited parties to arrive at a net purchase of only $16.6 billion. The huge increase of purchases in 2009 came solely from one source within the “Other Investors” group.

The Federal Reserve Flow of Funds Report defines the infamous “Household Sector” which is a grab bag catch-all miscellaneous ledger item. The Hat Trick Letter has honed in on this corrupted ledger item in past reports. This category supposedly purchased $15 billion worth of USTreasurys in 2008, then jumped with jet (printing press) assist in 3Q2009 to a staggering $528.7 billion in purchases, a 35-fold increase. The Household is on track to buy $704 billion worth in all fiscal 2009. The bottom line is a shocker! What is the Household Sector? It is a combination of miscellaneous, ledger adjustments, and blatant monetization. Sprott calls it a PHANTOM that does not exist, but serves the purpose to balance the ledger in the US Federal Reserve Flow of Funds report. In the past, this ledger item was calculated as residuals, securities on loan across groups, even inclusive of rounding error. The monetization is no longer hidden. He concludes that USTreasurys have become one giant Ponzi scheme, just like Bill Gross of PIMCO quipped. This is a smoking gun.

BY THE END OCTOBER 2009, THE “HOUSEHOLD” ACCOUNTING CATEGORY OWNED MORE USTREASURYS THAN THE US FEDERAL RESERVE ITSELF. THAT IS CORRECT. MONETIZED USTREASURY BONDS ACCOUNT FOR MORE THAN WHAT THE USFED HOLDS. THE USTBONDS ARE HIDING IN ENGLAND.

Sprott summarized the bulk buyers of the $1885 billion in USTreasurys through Q3 of 2009:

1. Foreign & International buyers which purchased $697.5 billion

2. The US Federal Reserve which bought $286 billion

3. The Household Sector which bought $528 billion (think printing press).

Foreign USTBond holders share their worry openly. Zhu Min is deputy governor of the Peoples Bank of China. In a recent discussion on the global role of the USDollar, he told an academic audience that “The world does not have so much money to buy more USTreasurys. The United States cannot force foreign governments to increase their holdings of Treasuries… Double the holdings? It is definitely impossible.” With foreign sources unwilling or unable to support USGovt debt, the monetization card will be used repeatedly and powerfully inside the desperate US-UK quarters. When the process is more widely recognized and publicized, the USDollar will be trashed. It is that simple.

IMPLICATIONS TO THE USDOLLAR & GOLD

No creditor nation whose leaders are in their right mind would continue to support the USDollar as the global reserve currency when its debt securities are the object of colossal fraud and powerful monetization. The USFed Chairman Bernanke before the USCongress testified that the USTreasury is not buying its own debt with printed money. He is a liar. He cannot identify the USTBond buyers. The evidence is compelling, and all around us. One does not have to be an advanced financial engineer to detect the trails of the monetized debt, its accounting location at the Household slot within the USGovt and within the United Kingdom in the Treasury Investment Capital (TIC) Report. The USGovt is racking up gigantic deficits, which will run in the neighborhood of $1.5 trillion annually for some time. The second half recovery claim is for morons. Austerity measures are a pipedream. The wars are both sacred and endless, a shameful badge of honor for a fascist nation. Reform is nowhere. Economic recovery is a mirage.

Blown opportunities, wasted bailouts, and lack of solutions like reform & restructure assure a much high gold price. Actually, they assure much lower currency valuations. With the redemption of Wall Street bond failure in October 2008 (see TARP Funds), and the nationalization of failed firms (see Fannie Mae, AIG), and the vacant economic stimulus that served little more than state budget shortfall plugs, the potential for a $2000 gold price was provided. Over $2 trillion was wasted. Debt across the debt-plagued landscape will be monetized. That is a fanciful way of saying newly printed money will be used to buy the wrecked debt, so that it can be shoved under the carpet. But the elephant living under the carpet creates a problem, with size and feces. With the redemption of British bond failure in 2008, and the nationalization of failed firms, the potential for a $2000 gold price was reinforced from the Anglo flank. Over one trillion British Pounds were wasted. Debt across the debt-plagued landscape will be monetized. With the redemption of European sovereign debt in May 2010, and the absence of stimulus in the European Economy, the potential for $3000 gold price was provided. Almost $800 billion was wasted. Debt across the debt-plagued landscape will be monetized. Gold thrives when the major currencies are debased, debauched, and destroyed.

The winds are showing strong signals of another powerful round of Quantitative Easing, the so-called QE2. When announced formally, or incontrovertibly detected, the potential for a $5000 gold price will be provided. The USEconomy is moribund, and the EU Economy is moribund. Economic stimulus and monetary accommodations have ended in the United States. The deceptive cry of a second half recovery is met by the arrival of a second half deep swoon. November elections are coming in the United States, when liberal policy, free spending, and reckless decisions are normally made. Numerous smart analysts like Eric Sprott, Jim Grant, Jim Rickards, and Porter Stansberry expect the QE2.0 to set sail soon, maybe announced this calendar year. Some analysts believe another financial market crisis episode will be permitted first, in order to permit an easy political path for the next round of Quantitative Easing. The QE2.0 is assured, not even worthy of a forecast. My forecast is for QE3.0 to be announced by early 2012, and for QE4.0 to be announced in 2013. The reason is simple. Absolutely no effort is being made to fix anything. The objective is to preserve power.

Banks still hold tons of toxic debt, as mortgage debt has been written down by $270 billion but residential housing alone has come down $7 trillion in value. Even the SEC head Shapiro admitted that a slew of bank failures are coming soon. Restructure of the USEconomy is not even a topic, as consumption is desired, not seen, as job growth is desired, not seen. Capital formation and job creation are no longer an understood concept within the tarnished marble halls of US economist offices. Return of the US industrial base is not even discussed, a lost bastion. Instead, the priority of banking and political leadership is preservation of power, in order to control the coveted US$ Printing Pre$$. The war machine churns, with huge costs, no debate, no change to believe in.

The entire world is working overtime behind conference doors to fashion a new global reserve currency. The IMF Special Drawing Rights vehicle is openly discussed, more like a Straw Man. The New Nordic Euro is a hopeful initiative conducted in secrecy, to be constructed with a gold component. By design, it is to enable a return to monetary system stability. However, by design it is also a USDollar killer. Its arrival will come without any doubt. When it does, the talk will not be about clownish deflation topics. Talk will be about hyper-inflation and the United States facing a Third World prospect. Talk will be about $5000 gold. Talk will be about nothing fixed by the financial syndicate in power. Let’s hope by then, the Interpol arrest warrants for many US & UK bankers and some EU bankers are delivered. The warrants already exist and await timing to be served, seen by a friend of a contact. The Jackass proposes the arrest warrants be served at the next Davos Economic Summit.

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Jim Willie CB is a statistical analyst in marketing research and retail forecasting.   He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at  www.GoldenJackass.com. For personal questions about subscriptions, contact him at  JimWillieCB@aol.com

Hinde Capital June 2010

Source: http://www.zerohedge.com/article/hinde-capitals-ben-davies-gold-market

Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

Time to awaken to a new dreadful reality. Just like autumn 2008, all over again, the stock market is breaking down in a powerful visible manner, after nothing was fixed with the vast financial structures but much money was spent. If only the USGovt had decided to address the problems instead of funding the myriad liquidity facilities, which by the way serve as a virtual banking system. If only the USGovt had decided to address the problems instead of funding the US Federal Reserve equity reserves, as in excess bank reserve lures. If only the USGovt had decided to address the problems instead of funding the bank preferred stock and bank executive bonuses. If only the USGovt had decided to address the fundamental need for capital formation toward job growth instead of simple extensions of jobless benefits. If only the USGovt had decided to address the dire need to liquidate impaired assets instead of warehousing them, which happens by the way, to produce irreconcilable bank system constipation within the loan processing system. If only the USGovt had decided to address the cancerous large corporations too big to fail that must be permitted to die, instead of letting them seize greater power in USGovt and Wall Street functions. If only the USGovt had decided to address one of the root causes of USEconomic deterioration, namely endless war, so that more funds would be available for that essential capital formation and job growth, not to mention state budget plugs, as the 50 states suffer from massive capital drain through taxation squandered at the federal level, a drain that includes war.

When no solutions are achieved, even no solutions pursued, the sugar high vanishes, the adrenalin rush wears off, and the underlying root causes return as the same symptoms to the sick patient. With no remedy, the symptoms turn much worse!! The symptoms return with a vengeance, like right here, right now. Shocks to the body economic are imminent, assured by lack of required credit for almost two years, compounded by the Gulf of Mexico poison event, sure to result in a killed exterminated appendage.

One of the most pernicious dirty secrets is that the supposedly excess bank reserves parked at the USFed are actually Loan Loss Reserves attracted by the USFed itself, by virtue of interest yield offered. Banks are running naked and insolvent and constipated, hardly a pretty image. The extraordinary measures have worn off, even as the political will to continue them has faded away. Reality has a way of returning to the scene, front & center. A rot has permeated the USEconomy. Personal bankruptcies are up 14% in the first half of 2010, hardly a sign of a recovery. Home sales are down. Foreclosures are unrelenting. Retail sales are down. Factory orders are down. California might look worse than Greece. About one million Americans have dropped out of the jobs market in the last two months. Eight million jobs have been lost in the recession that never actually ended. The rolls of people unemployed but not receiving a jobless insurance check amount to 9.2 million. The USFed has begun to eye the Printing Pre$$ once again. Internal battles within the USFed center upon asset deflation and resumed bond monetization. The august body of hacks who occupy offices at the venerable US Federal Reserve Board is arguing in heated fashion about QE2, a Round #2 of powerful monetary printing, bond purchase, and financial market defecation, with predictably destructive capital formation effects toward which they remain blind.

Urban Bread Line

Beware the new Modern Day Bread Lines. The new bread line is from job fairs, where unemployed workers seek to become the breadwinner again, a desperate struggle for families to survive. People queue for a job fair in New York in this photo. The share of the US population at working age with jobs in June fell from 58.7% to 58.5%, a big drop from 63% just three years ago.

U.S. STOCK MARKET SLIDING OVER THE CLIFF

The S&P500 stock index carries added meaning, since the large swath of US citizens who are not insolvent choose to react strongly to the stock index when drained of wealth. Paper wealth is fast vanishing, while the fiat paper monetary system continues to suffer convulsions better described as a death experience. Denial is rampant. First the US banking system died in autumn 2008, next the global monetary system is dying. Again, denial is rampant. The people react with fear, alarm, and anger when their pension funds suffer significant loss. Those funds suffered significant loss in autumn 2008, and they are on the verge of suffering a similar loss in the next several weeks. My sincere considered opinion is that the stock market breakdown is part of a plan, one to permit or even force a political change toward a powerful grotesque second event of inflation. Fiscal stimulus and monetary accommodation have been withdrawn in the past few weeks, as the mythical recovery is permitted to take root. Its fruit is rotten apples, peaches consumed by insects, grapes dead on the vine, and oranges lying on the ground trampled. A shock to public sentiment will open the flood gates to a new bigger round of monetary inflation. The first one was all for the bankers. The second one will be all for the USEconomy, on the verge of a powerful breakdown, if not collapse, since nothing has even remotely been fixed or even remedy pursued.

The effect on the gold price from Round #1 was a push down followed by a powerful boomerang up to new highs. The effect on the gold price from Round #2 will be similar in direction but more powerful in upward movement. Think $2000 gold !!

The S&P stock index decline will be at least as bad as the autumn 2008 decline. Claims of Price/Earnings ratios being low are pure deception, since earnings come from chambers where accounting fraud is permitted in the finance units of broad types of businesses. Claims of cash on the sidelines are more deception, since the funds are escaping a insolvent system suffering from powerful deterioration. The indicators are dire, ugly, strong, and undeniable. The 50-day moving average (in blue line) is soon to cross below the 200-day MA (in red line). About ten thousand technical analysts do indeed notice this vital signal, a reliable one hardly shrouded in mystery or abstruse theory. The 50-day MA used to serve as a support since autumn 2008, but now it is acting as a ceiling of resistance (in green circles). Notice the transition it endured in February 2010. Other similar MA indicators come with the 20-week MA crossing below the 50-week MA, a matching event in progress, but a little slower in developing. The bearish MA crossover is a loud Death Cross signal. A powerful decline is imminent and unavoidable, one to shake the world financial markets, certain to bring it to its knees. It will permit political policy change to come, like a hot knife through butter. Look for the S&P500 index to retest the March low, which reached 666, the signatory number of the Wall Street cabal and code from their spiritual leader.

A queer statistic has emerged that underscores the perversion that is Wall Street and the stock market. High Frequency Trading has not gone away. A couple months ago, when it was exposed during a single day swoon event, such trading was responsible for 83% of the entire New York Stock Exchange trade volume. Somehow the word ‘CircleJerk’ comes to mind as the Oligarch Banks compete toward a liquidity climax with fewer players of potency remaining each year. A liquidity analysis by Abel-Noser indicates that the US stock market has morphed into a sickly concentrated pool where the top 99 stocks account for 50.1% of total domestic trading volume. In June, the top 20 stocks accounted for 28.9% of all domestic volume, an increase to record level logged each month. The HFT algorithms are forced methodically in a reduced number of only the most liquid stocks. The game actually results in gradual removal of players from the market. The US stock market will eventually develop into a tomb without volume. At that time, large pension and mutual funds will be forced to consider that their vast portfolios might be worth something on par with the volume-less mortgage bonds tucked away in the acid cellars. Their large investment stakes in stocks simply will not be redeemable. The SPX stock index chart should conjure up images of Wiley Coyote legless over the canyon.

GOLD OCCUPIES A DIFFERENT PLACE

The effect will differ from the past, due to the Paradigm Shift in full force. The effect on the gold & silver prices will surely include some initial downside movement. However, this time around, with sovereign debt under absolute siege, the way it plays out will be very different. However, this time around, with gold having taken a reserve currency role, the way it plays out will be very different. However, this time around, with USFed balance sheets wrecked and bloated, the way it plays out will be very different. Imagine a powerful stock market decline panic with a coincident crisis in sovereign debt. USTreasury Bonds might still attract big money, but this time it will be Dumb Money that refuses to recognize the USTBond as the last sovereign debt to be attacked with a vengeance. Usage of new government debt to prevent the disaster in asset prices will force a vicious cycle of ruin, which will infect, corrode, and destroy remaining confidence in all things paper. Gold has in the last several months claimed an important spot at the opposite head of the monetary reserve dinner table. It is a key ingredient in non-Anglo backroom restructure initiatives. The Untied States bankers are trapped in quasi-depression 18 months deep into a Zero Interest Rate Policy climate, after Round #1 of Quantitative Easing is complete, and wasted fiscal stimulus that sent the annual budget deficit above 10% of GDP.

Recall a Jackass Axiom: The first nations that abandon the USDollar and the US$-based financial system, both with banking and commerce, will be the leaders in the next chapter, part of the Paradigm Shift and its effect. Recall the Sound Money Corollary: The next global reserve currency cannot be paper based, operating by fiat and faith, since no paper currency can replace a fiat paper global reserve currency. Thus the Intl Monetary Fund and their hapless Special Drawing Rights ploy would serve as a mere raft of papyrus reeds, tied together, heading over the cliff waterfall onto the rocks, with a predictable outcome.

Gold lies at the nexus of the systemic vulnerability, the linchpin holding the fiat game together, but with a suppressed hidden basement price mechanism ready to explode. The corrupted illicit actions have done harm to the gold & silver markets, in addition to the stock market, and the bond market, even the housing market, in fact all markets anchored to the USDollar. No US$-based market is fair of equilibrium based anymore. All are distorted beyond recognition. Without the constant props, these markets would all likely collapse of their own weight toward significantly lower price levels, real levels.

OMINOUS COMPARISONS OFFER WARNING

The long list of horrendous realities is soon to force emergency changes to official policy. The telltale summertime distractions are here, like vacations at the beach, in the mountains, at Uncle Ernie’s, as well as backyard barbeques. We are about to observe a repeat of the Great Depression stock decline pattern, with pattern recognized broadly, despite all the funny money thrown into the wind, into banker pockets, and into Black Holes. That pattern was identified by a strong recovery off a nasty decline, mislabeled a return of a stock bull by compromised clowns and well paid charlatans, followed by even lower low price levels. A titanic battle is underway. On one side is the political cabal that wishes for decline, breakdown, and wreckage in order to carry out its political agenda of concentrated power, even emergency power like martial law or at least rationed supply. On the other side is the Weimar option of hyper-inflation, as the extreme new money creation leaks into the system and forces prices of everything upward and skyward.

A dynamite type risk exists, unfortunately. If much higher price inflation becomes engrained and recognized, if the official price inflation statistics reflect reality (a horrible thought to the USGovt stat-lab fiction writers), then grand powerful effects would come to the bond market. Worse still, grand powerful effects would come to the sick thorny cancerous appendage to the bond market, the credit derivatives. Refer to both the Interest Rate Swaps and the Credit Default Swaps. Recall the USGovt has a huge conflict of interest. They sell USTreasury Bonds. They have issued over a fresh $Trillion each year for the past two years, enough to threaten their bond structures. So a bust to the USEconomy and a bust to the US stock market works well with their plans, in concert with their motives. They must create more bond demand to match the extraordinary supply. Heavy duty price inflation would kill the plan. But a stock breakdown fits well with the plan. Heavy duty price inflation would ignite a credit derivative explosion, or a series of explosions, as their long fuses are both hidden and criss-crossed. These fuses would be easily lit from a bout of broad price inflation.

The key to holding the USEconomy hostage is the excess reserves held in the USFed vaults, and the tighter lending rules among banks. Bear in mind that three types of credit creation exist in the USEconomy. In order they are 1) vendor finance (which has largely vanished), 2) bond securitization (which has largely vanished), and 3) bank loans (which have largely vanished). So the USEconomy is being strangled. One could say that vendors and bond issuers and banks recognize the heightened risk of falling collateral value and weakening income streams. Sure! But beware of the plan and carrying it out.

The current economic decline might have much more powerful sinkholes, criss-crossed dynamite fuses, and major triggers directly ahead. The US housing market has begun a powerful resumed second decline. Somehow, university textbooks in Economics curriculum failed to cover the current situation of extraordinarily high bank inventory of foreclosed homes, working opposite to an extraordinarily strong decline in home purchase applications, amidst a banking system heavily dependent upon $100 billion temporary intermediate credit lines, while the big banks park their Loan Loss Reserves at the USFed, and the USFed struggles to avoid repeated powerful Quantitative Easing programs. (That last very long sentence should be read a few times in repetitive fashion.) If truth be known, the USGovt and Wall Street firms fund many university professor chairs, thus perpetuating the false education process that inculcates fallacious theories.

Recall that the entire 2002-2005 USEconomic expansion was built atop the housing & mortgage bubble, a chapter fully endorsed by the erudite prestigious but reckless heretics among the national economic counselors. To be sure, the May end to the home tax credit has made an effect. The housing market will enter its fourth consecutive year of decline. My ongoing forecast stated since 2007 was for two years of home price bear market. My 2008 forecast was for two more years of home price bear market. My 2009 forecast was for two more years of home price bear market. My 2010 forecast is for two more years of home price bear market. That is a better and more credible approach to forecasting then a more honest approach: ENDLESS HOUSING BEAR MARKET.

The upcoming S&P500 stock plunge will serve a purpose, perhaps a planned purpose. It will permit the USGovt to announce with expedience a resumed Quantitative Easing in order to prevent an economic collapse. Renewed stimulus and accommodation will be rendered a snap, easy as pie, with no political obstacles. Deficits be damned, will be the battle cry!!

The Gulf of Mexico disaster will soon spread like an oil-soaked wildfire of economic destruction down South, which could easily affect the supply chain with grain delivery up the Mississippi River. Barges with oil-soaked hulls will not be permitted up the river. In fact, electricity power generating stations along the coast are at risk of shutdown, due to the likelihood of oil entering the water intake valves. The great majority of US states are at the end of their rope with budget shortfalls and federal negligence, certain to result in broad layoffs, even dismissal of police and teachers and garbage collectors. These three groups of workers are commonly viewed as most critical. If police vanish, then chaos erupts. If teachers vanish, ignorance prevails along with idle youngsters on the streets. If garbage piles up, then the rotten Third World finances will feature matching bookends of rotten Third World debris, garbage, and putrid refuse piles. If only festering rancid bonds produced an odor, they would stink.

Mega-trend comparisons offer further strong warnings, reflecting powerful changes compared to autumn 2008. They pertain to the USGovt debt picture with horrendous $1.5 trillion annual back-to-back deficits. They pertain to the monthly $200 to $300 billion federal debt issuance that has become a standard billboard feature, along with newfound scrutiny toward the USTreasury complex. They pertain to the new reality of the 10-year USTreasury yield (TNX) that used to be hovering around 4.0% level but is now under the 3.0% red light level. They pertain to the US housing market set for a surprising sinkhole event, since supply is not only rising, but is hidden, while demand is falling, absent the tax credit stimulus. A nasty shock event from liquidity drought is coming right around the corner. First sight will be the SPX in a heavily publicized tumble. It will scare whatever wits remain among the compromised USCongress for sure. The plunge will scare the wits out of the US public again.

Four other mega-trend factors hover with a nasty specter. 1) The nation of Mexico is in the midst of a failed state breakdown into pure chaos. 2) The Gulf of Mexico is fast turning into a kill zone, both ecologically and economically, whose impact will be powerful and soon. 3) The European Bank Bailout with its $1 trillion in aid fixed absolutely nothing across the Atlantic, but did send a few $100 billion into USTreasurys, with no tangible lift to the USEconomy. 4) Refusal to permit big financial firms to fail acts like a cancer, whose 20 months of progression since autumn 2008 has taken a hidden but deadly toll.

RENEWAL OF EXTREME MONETARY STIMULUS

The US money supply shows incredibly ugly powerful declines in circulating money. Contrast this graph to that of the broad money supply, which counts funds stuck in the bank vaults and stuck in the USFed itself, ensuring no usage for lending capital. Broad money supply is skyrocketing, as money velocity is careening downward. The Leading Economic Indicators all look miserable and ominous. None of these many factors were showing such dire signals 20 months ago (maybe LEI was). Anyone who believes the USFed and its lackey runners working in the USGovt will not reverse course and begin Quantitative Easing Round #2 are just plain simpletons, tails on the dogs of policy whiplash. A confirmation signal comes from the sub-3% long bond among USTreasurys. Recoveries coincide with the long bond yield rising, not falling. This contradiction of recovery claims escapes most economists, hacks entrenched.

As the USEconomy falters in the second half already underway, instead of recovering, the USGovt will soon announce the expedience of a resumed Quantitative Easing in order to prevent an economic collapse. The USGovt will also soon work toward a massive economic stimulus plan in almost emergency atmosphere, which might actually contain some stimulus, unlike the last farcical display of political avoidance. The states will send governors to WashingtonDC directly into the snake pit.

The discredited economists will continue to harp for more of the same non-remedies that have turned on the masters, in systemic ruin. Keynesian abuses have rendered the nation into the last ditch, as bankers with economists at their side press harder on what has failed to work !! Private discussions among bankers reveal a growing desperation, as typical remedies have accomplished nothing. We hear of much less bang for the buck. We hear other stupidity like volume of stimulus being important, whereas quality of stimulus is hardly mentioned, a Santelli theme on CNBC. The Earls of Keynes must be sitting back in horror watching the bitter fruits of their misguided policy. The choices seem like polarized options, more corporate welfare or more collectivist activity couched in an expanding Politburo that soon will feature 20 pages of newly listed health care agencies. Solutions are sorely and universally absent.

Look out below. Investors had better be in gold & silver heavily. It is time to roll out the new currency (Nordic Euro) backed in part by gold, and maybe oil too. Buy with both hands any further hefty discount offered on physical metal gold & silver. This time, the COMEX and London Metals Exchange might suffer a default event that coincides with the US stock rout. The strain on physical supply might be powerful, precisely when the paper prices come down with the corrupt markets, enough to break the paper gold & paper silver markets beyond repair. Any US stock rout will be matched in the London FTSE and European bourses. Physical gold & silver demand is enormous. Vast inventory supply in silver is exiting the metals exchanges, without much reporting. Basic physics dictate that a gold default event will occur in the COMEX and LBMA before long, after so much physical metal removal in the face of growing demand. Each month the differential potential grows more acute, thus less deniable, and closer to realization. My sources tell that gold bullion is exiting Switzerland and London, heading to Hong Kong and Singapore, in a big big way!!

ABSENT LIQUIDATION, REFORM & RESTRUCTURE

Add the absent economic stimulus and absent monetary accommodation, the newest features after hollow political resolve supposedly has entered the room. The Obama Admin has under 8% of its ruling cabinet and agency heads with any business experience whatsoever. Consider that an important factor in the lack of job growth. Little do they comprehend, nor their banker masters, that liberal money creation actually destroys capital, destroys businesses, and destroys income. The US political leaders and banking leaders have not learned the lesson of economics in half a century. Worse, the Obama Admin tax hikes are soon to kick in. They must pay for the Health Care Program that was supposed to pay for itself after all. Tragically, the banking and political leaders are caught in a bind fashioned from their own propaganda and lies. They have been talking without end about a USEconomic recovery, fragile though it may be, a recovery that needs more nurturing. It needs more reality instead. So the bankers and politicians will let the USEconomy swim without life preservers, ride the bicycle without the training wheels, walk without crutches. A bad chapter is soon to be written. At least the charlatan hack clown heretics will be able to produce more demand for USTreasury Bonds, the most important bond they sell. The public, the investment community, might soon catch on. The USGovt and Wall Street have never made any legitimate effort to reform or restructure. Their entire motivation and purpose has been to raid the USTreasury and Congressional till, to grab as much banker aid as possible, and offer nothing in return for bonafide reform.

The tax cut stimulus is going away. The car purchase tax credits are going away. The mortgage bond monetization program is going away. The jobless benefit extension beyond 99 weeks is going away. The lack of job prospects is not going away. The missing incentive for business expansion is not going away. The vast budget gaps and pension obligations for many US states is not going away. The home foreclosures and bankruptcies are not going away. The challenges in securing credit and loans is not going away. The syndicate control of the USDept Treasury is not going away. The sacred defense budget is not going away.

The endless war is not going away, nor are its heavy costs. The Independence Day commemoration (July Fourth) brought to mind the sacrifices by soldiers. CNN ran a surprisingly candid report during the holiday. The USMilitary is spending $1 billion per year to fight each known Taliban in Afghanistan, from an admission. The annual budget in the wartorn nation is $100 billion, to fight an estimated 100 Taliban from Pentagon data. This war is about narcotics production, processing, distribution, trafficking, and money laundering. See the recent attacks at the narcotics money laundering clearinghouse in Baghdad Iraq, run by JPMorgan Chase. The Trade Bank of Iraq has been the site in bombings outside and murders inside. The natives have finally figured out what the bank is all about. They might be trying to muscle in for a share. Even the Russian Govt has brought attention to the vast export of heroin to their country from the US-occupied nation of Afghanistan. Oh lest one forget, vast sums of cash are exiting the Kabul capital, billion$ loaded on flights. The USMilitary has exported freedom to the tiny rugged nation of Afghanistan, the burial ground of empires whose leaders cannot read history books. In defiance, they choose to ignore history as the next chapter is written about them in a continuing theme. As the US slides further into the Third World, my forecast is for the USMilitary to morph into a fully functioning private syndicate with many business units. Profit has been its motive for many years, hardly defense of our liberty.

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Jim Willie CB is a statistical analyst in marketing research and retail forecasting.   He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at  www.GoldenJackass.com. For personal questions about subscriptions, contact him at  JimWillieCB@aol.com

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Jim Willie CB, editor of the “HAT TRICK LETTER”

Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

Let me start the article with a personal note. For the last six years, my pen has put forth a public article almost every week. Since the end of 2009, a change has come from that pattern, for four reasons. First, articles take time and serve as free volleys sent into cyberspace. They are attempts to raise awareness of a broken corrupt system, to encourage increased investment protection by the investment community, and to make repetitive messages that can sink in. Second, many of the warnings have come true of a monetary system in tatters, an insolvent banking system, a failed central bank franchise system, and a discredited amalgam of sovereign bond markets. There is no need to repeat warnings of further events toward breakdown when the forecasted breakdown has arrived in full glory. Third, I wanted to both digest the crisis myself, to discuss and ruminate over the disaster with my trusted colleagues, and to permit folks to digest the disaster, ruin, and continued breakdown themselves. Fourth, more time has been devoted to Hat Trick Letter subscribers, and less to the public. Events never occur according to a script, or forecast, or plan. Too many unintended consequences come. Too many complex elements take a toll within the system. Too many corrupt players defect or are badly weakened. This is history in the making, a highly important chapter of history being written before our eyes. This is World War in Finance with the AngloSphere under great pressure of losing its hegemony in the control of global financial structures. Entire national economies are at high risk. These are historic times.

THE USDOLLAR SWAP FACILITY

USDollar swap lines have been revived, rejuvenated, and applied. They are critical in sharing the workload in monetary expansion, the inflation machinery. The US Federal Reserve issued the following press release on May 9th, heralding the facility. It enabled the printing of money for immediate usage by foreign nations, as they essentially print their own money but use the USDollar wellspring as conduit. See the USFed press story (CLICK HERE). This announcement should be viewed as a response to debt abuse, and an open license to continue the great game. The public balance sheets have systematically built up greater debt in order to rescue private banks from ruin. The government leverage upward has enabled a private bank leverage downward, with little success however, as perception of wreckage is pervasive and turning universal. The bond market recognizes the ruin has shifted attacks from banks to sovereign accounts, the government debt arena. So the USFed will produce mountains of new money, and gold notices the debasement process. The USFed press release read as follows.

“In response to the reemergence of strains in US dollar short-term funding markets in Europe, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing the re-establishment of temporary US dollar liquidity swap facilities. These facilities are designed to help improve liquidity conditions in US dollar funding markets and to prevent the spread of strains to other markets and financial centers. The Bank of Japan will be considering similar measures soon. Central banks will continue to work together closely as needed to address pressures in funding markets.

The Federal Open Market Committee has authorized temporary reciprocal currency arrangements (swap lines) with the Bank of Canada, the Bank of England, the European Central Bank (ECB), and the Swiss National Bank. The arrangements with the Bank of England, the ECB, and the Swiss National Bank will provide these central banks with the capacity to conduct tenders of US dollars in their local markets at fixed rates for full allotment, similar to arrangements that had been in place previously. The arrangement with the Bank of Canada would support drawings of up to $30 billion, as was the case previously. These swap arrangements have been authorized through January 2011. Further details on these arrangements will be available shortly.”

This spigot is precisely what lifts the gold price along the powerful long-term trend. It is the great monetary inflation lever. However, in the last two weeks, the easy credit lines have been taken advantage of to supply funds to central bank agents who have a constant habit of selling huge contracts of gold futures, of course often naked short selling. It should come as no surprise that the gold price was pushed down $60 and the silver price pushed down $2.20 after the Dollar Swap Facility kicked in, yet the gold community seems unaware. Harken back to the autumn 2008, to the crisis acceleration events and banking system demise. Recall the $132 billion payment made to JPMorgan on a Saturday morning before dawn before a crooked bankruptcy court judge in Manhattan. The official story was a diversion, claiming the private Lehman accounts were compensated for. In the following two weeks after the giant slush fund was delivered to JPMorgan, the gold price and silver price plummeted. The gold cartel had money to put to work immediately to suppress precious metals, the enemy of the USDollar. Last week was a sort of replay with the slush funds similarly reloaded with Dollar Swap Facility funds, courtesy of the USFed.

OPTIONS EXPIRATION

If the Commodity Trading Futures Commission truly wished to do their job, and identify manipulation in the precious metals market, they need only to open their eyes and monitor the Big Four trades in this current week when futures options expired for gold. The gold cartel illicitly pushed down the gold price so that options expire worthless. Notice the cartel kept the gold price below the critical $1200 waterline until Tuesday afternoon. Poof, a heap of options go worthless, and whoosh, the gold price moves over $1200 in the wake of the criminal event. Some analysts actually made sneid comments like the gold traders “had it coming to them” or some such. So if a band of Florida retirees goes to Vegas on a field trip, eager to double their money at the casino tables, do they also have it coming to them to be victimized? The Florida Suckers face crooked blackjack tables and altered roulette wheels, and their greedy grubby plans are rightfully stripped by corrupt operators? Never should greedy gold traders who expect monumental mammoth monstrous monetary inflation to push gold toward $1300 per ounce, be considered cannon fodder. The CFTC is just another Goldman Sachs office, obedient to their masters on Wall Street and the USDept Treasury. Referring to options expiration day of Tuesday May 25th, Jesse of the Cafe Americain said “Gold traded all day below 1200, at times rising to within fifty cents of the key strike price of 1200 where a large concentration of call options were clustered. Well, since the call options at 1200 have expired worthless, why bother using the energy to continue to suppress the price?” The games, tactics, and devices to suppress illicitly the gold price are fully out in the open. One must wonder if the CFTC officials are asleep. We know Larry Summers is asleep on the job.

DOLLAR SWAP RESCUED USTREASURYS

The USTreasury Bond functions with two roles. It competes as safe haven with gold during crises and sudden asset price stormy declines. But it also serves as funding agent for the powerful monetary inflation. Confidence in the USTreasury market had to be restored. Notice the IEF bond index fund of long-term 7-10 year USTreasurys, lifted at a critical juncture. It was at the point of decision, breakdown or rally. The Dollar Swap Facility was used to bail out big banks with a heavy inventory of Greek and other PIGS nation sovereign debt. The banks turned around with their impaired bonds redeemed handsomely, and placed a great deal of the final funds in USTreasurys. That might have been an actual requirement for participation in the Swap Facility in the first place. So the Bond Vigilantes appeared at the barn door, but were scattered by a flurry of machinery. A bond rally ensued, aided and abetted by the Dollar Swap Facility. So did the USFed have motive to aid European banks or the USTreasurys at the precipice?

MORONIC GOLD BUBBLE TALK

Whenever talk turns to gold being a bubble, regard the syndicate message as one of desperation. The true bubble is USTreasurys, if not all government debt including UKGilts, the PIGS national debt, and much more. The AngloSphere is replete with asset bubbles in the last 20 years. From tech stocks to housing & mortgage bonds to USTreasurys in a march over the cliff under the aegis of fiat folly. The phenomenon most striking in the last two to three years has been the transfer of wrecked assets from private banker balance sheets to the government balance sheets, now wrecked also. The tragedy is that the private banks remain deeply mired in insolvency, while the debt ratios and extreme leverage of the sovereign debt is coming to light. Thus gold has begun to be openly recognized as a legitimate safe haven in full competition with the USTreasurys and the major currencies. The rout of the Euro currency has opened the floodgate of criticism against ruinous governmental policies centered upon bailouts for banks and futile stimulus plans. Each and every grand error by policy makers is followed by bigger grander policy errors, working toward a climax. They double down like in a poker game with a losing hand, and double down repeatedly, stuck without alternatives.

The untold story of the gold correction in the last two weeks has been that it was funded by the Dollar Swap Facility, but the good news is that its price movement abides by the parameters of a breakout correction. The 1180 level has been honored, not broken. The moving averages are still in uptrend. The powerful reversal since the Dubai and Greek crises were unleashed has resulted in a breakout, a correction that typically revisits the point of breakout, and a continuation. The ruined monetary system continues in ruins. The broken central bank franchise model continues in wreckage. The discredited sovereign debt continues to be rejected. The entire globe seeks a solution, but the buffoons in charge can only reach for the same liquor that turned the brains of monetary leaders into vinegar and rotted the body economic. They have ordered $1 trillion more liquor for distribution, totally ignorant of its ineffectiveness. Worse, they are unaware how the destructive effect of continued monetary excess kills capital formation and leads to enduring recessions that morph to depression.

Each new round of Quantitative Easing and gold price suppression assures an even higher potential gold price as long-term forecast target. The official policies are ruinous, and even destroy capital, eroding capital formation, and circumvent job creation. The eventual gold target in my view has moved from $5000 to $7000 in the last few months. No remedy is in the works. No solution is even pursued. No liquidation of toxic assets is underway. More stimulus is planned for the USEconomy, as home foreclosures continue and bankruptcies continue and bank closures continue and lending is obstructed. The more money the syndicates and governments in partnership create in futility, the higher the gold target becomes. Their ship is but a derelict at sea. The lifeboats consist of golden vessels. Soon no more lifeboats will be available. The clowns on the helm will be the last drowning victims.

FINANCIAL REGULATION & THE FLASH CRASH

Hats off to the Wall Street financial syndicate. They arranged a 1000-point stock market descent precisely on the day (May 6th) the Financial Regulatory bill had a key provision being scripted for auditing the US Federal Reserve. The US Senators blinked, watered down the provision, and will force an audit but only for certain TARP-related events. At least it is a foot in the door to the corrupted halls. The Flash Crash, as it is known, has turned the US stock market even more into a round robin competitive backyard for Wall Street firms, where 73% of the NYSE trading volume used to be derived from their computer program trades. Figure even more now. The US stock market has become the butt of jokes. Miraculous recoveries after 3:30pm are standard these days, like Tuesday. Even the NASDAQ was 3.3% down late in the day, only to stage a recovery. The Plunge Protection Team is operating much more in the open. As they ply their trade, they have rendered the US stock market into one of the most irrelevant of all financial markets. Recall its foundation for recovery one year ago was relaxation of the financial accounting rules, thus converting equity valuation into over $1 trillion fluff. The most striking and predictable aspects of the Fin-Reg Bill are how the USFed has even more power than before. The original plan was to limit its power. So again, hats off to the syndicate. They took the honorable motive to limit syndicate powers and to audit the USFed, and turned it into even more USFed powers, like the rod to dissolve any financial firm that endangers the US financial system. Or should it be said endangers the syndicate? Goldman Sachs bribery to the US Congressional members must have played a prominent role. That is the capitalism at work in the United States. One should demand to see mainstream economists provide a Supply & Demand curve for USCongress members.

INTERPOL & THE LIST

Word has come to the Jackass desk from a very different location, two of whose university chums serve on an elite commission in Central Europe. Recall the stories of a mid-December landing of a planeload of Interpol agents and cops. Recall the announcement by President Obama in January of strong subpoena power granted to Interpol operating in the United States, a story that should have sent shivers through the press networks. Instead, it was duly reported and forgotten, a typical syndicate tactic. The subpoena power is not to be dismissed. It enables Interpol agents and cops to obtain documents, to force testimony, and to investigate with some teeth. My source tells of how the Interpol has been ON THE GROUND IN THE UNITED STATES FOR MONTHS doing their work, building a case against corrupt bankers. The same source told of how last August 2009, at least thirty former USDept Treasury officials and Wall Street executives together appealed to Interpol, turned state’s evidence, and were granted asylum. They arrived with much damaging evidence in the form of documents, emails, CDs, trading logs, and personal testimony. The information gained has been used for several months in criminal investigations of very high order. Much progress has come, but it is not shared publicly. Finally, lists are being compiled for Arrest Warrants of US & UK & West Europe bankers and politicians complicit with banking center corruption. The story mentioned London bankers working for Goldman Sachs as having their passports lifted. More to come on this showdown. It begs the question who delivers the warrants and what happens if an F.U. is given in reply, especially if armed bodyguards are present. The list reportedly reads like a Who’s Who, not yet seen by Jackass eyes though. A climax is coming, but unclear when.

ENDLESS Q.E. ROUNDS

The public is told that each Quantitative Easing round is the last, the one and only. Just as my forecast was for absolute bond contagion two years ago, and my forecast was for frequent unending AIG & Fannie Mae bailouts, and my forecast was for no Exit Strategy with a steady unerring path of 0% policy, next my forecast recently has been for numerous announced formal QE rounds. In fact, they will become a global round robin, as each continent announces theirs, which opens the door politically for a redux on ours. Then ours invites another of theirs like a merry-go-round with exposed knives cutting capital and its engines. Great Britain is on course for a powerful second QE round. The US by virtue of the revived Dollar Swap Facility has its second QE round, although hidden, the first being in the autumn months of 2008. This month we see the first big QE round in Europe. Combine these QE rounds with government stimulus designed to resuscitate the many moribund economies that stand unresponsive, and surely monetary destruction is on a clear path.

MORE ECONOMIC STIMULUS DIRECTLY AHEAD

Meet Lawrence Summers, head of the White House Council of Economic Advisors. His reputation is of brilliance, but laden with obnoxious and arrogant behavior. He tends to become bored at policy meetings. He is reported to be pushing for another USGovt stimulus package. He must not be reading about the nascent economic recovery that blesses the US nation, endorsed and promoted by USGovt agencies and the President himself, echoed by his Cabinet of extinguished business minds. Perhaps Summers read the recovery reports and was put to sleep. Perhaps the policies seem more like Politburo pablum, certain sedatives. We the People can count on Summers to serve as vigilantly and diligently. Wake up, Larry! There is a crisis to manage!!

GREEK DRAIN PLUG & FAILURE PLAN

Key provisions are outlined in the European Union Bank Bailout plan that permit backdoor scuttles. The first provision states that the aid package will be “immediately and irrevocably cancelled” if it is found to breach the EU Treaty’s official No Bail-out clause. Such finding can come in a ruling by the European court or the Constitutional courts of any EuroZone nation. The second provision states that if any country finds it cannot raise funding for the rescue at interest rates below the 5% level agreed for Greece, it may opt out of the bail-out. One might soon observe the biggest sellers of European Govt debt and speculators in the EuroBond sovereign Credit Default Swap contracts might be the governments themselves. That includes both the distressed nations in the PIGS pen, and the core healthier nations themselves which have born the brunt of the intramural welfare system in fracture. In my view, the Greek Govt debt crisis has been used as a distraction from the extreme problems not only in Spain, Italy, and Portugal, but in the United Kingdom as well. The sovereign debt rejection in the bond markets serves as an indirect repudiation of the global monetary system, whose backbone is not gold but rather debt. The climax will be the UKGilt default followed by its partner default in the USTreasurys. The primary truth in the sovereign debt market is that these bonds cannot be rescued, since the device for any rescue under consideration is more fiat currency, whose basis is indebted acid in the mix.

Notice the string of failed sovereign bond auctions, most notably in Germany. Rejections are in progress, in lands that do not possess the Printing Pre$$. Expect the bailout in Europe to fail. Its litmus test is the Euro currency itself. It has fallen to a lower level than before the announced bailout. These are band-aids applied to a gaping wound, a fatal wound that needs far more than tourniquets. It needs a new monetary vehicle upon which to build a new foundation. Its failure can also be seen in the separation effect. The rising Euro no longer spreads good tidings or provides favorable winds for US stocks. See the above graph.

NORTHERN EURO CURRENCY

Word has come to the Jackass desk from the War Room itself, where important decisions were made in a series of meetings inside Germany. The new Northern Euro currency is finally in its formative stage. Contracts have been forged. Relationships with the more independent Central European central banks have been arranged. Market mechanisms with the commodity markets have been delegated to Finland. A role for Russia is being planned, source of many commodities. The timing of the new Northern Euro is planned for June 2011, with perhaps little if any formal news releases. The key element of the new Northern Euro will be its gold component. Permit a Jackass conjecture of a 1% or 2% cover clause, meaning $100 million in Northern Euros could be redeemed for assets that contain $1 or $2 million. The new currency will be born in crisis. It will be begged for. One must wonder if Saudi crude oil will eventually require payment in Northern Euros. Maybe it will contain not only a gold component but a crude oil component.

For over a year, my openly stated belief has been that the first nations to create a monetary and banking system with clear distance set from the USDollar will be the next global leaders emerging. It will be Germany and its cohorts that include the Benelux nations and Austria. In debate is the future role of France, which might be assigned squire duty for the Germans who hold 94% of their sovereign debt. The antics of Sarkozy are as annoying as a mosquito roaming near the face during bedtime hours. By the way, the Northern Euro as planned is a USDollar Killer, since the present day world reserve currency will fall rapidly in valuation, finding its true worthless value, in reflection with its hemorrhage of USGovt deficits and debt ratios that put it in the same PIGS manure pen as the Southern Europe nations heaving in convulsion.

FASCIST BUSINESS MODEL

Take a minute to be reminded of the model at work for almost two decades, ever since Goldman Sachs took control of the USDept Treasury under the destructive hand of Robert Rubin in 1992. Much has been written in the past few years in these columns about the Fascist Business Model, where large corporate interests are merged with the state. Federal policy actually melds with those of Wall Street, or the former is directed by the latter. Much has been written about the near total lack of remedy, lack of reform, lack of liquidation, and lack of law enforcement. The key characteristic of the Fascist Business Model is that its corruption and inefficiency lead to a total breakdown of the system. Its conclusion is the failure of the state and breakdown of the economy. The housing market failure and chronic insolvency is its bitter fruit. The insolvent banking system is its backfire blast. The TARP Fund fiasco was a huge flag signal of the corruption climax rooted in extortion. The Louisiana Oil Volcano is just icing on the cake. The ultimate breakdown will be seen as a USTreasury default, whether technical or actual.

THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.

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At least 30 recently on correct forecasts regarding the bailout parade, numerous nationalization deals such as for Fannie Mae and the grand Mortgage Rescue.

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Jim Willie CB is a statistical analyst in marketing research and retail forecasting.   He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com. For personal questions about subscriptions, contact him at JimWillieCB@aol.com

“U.S. Dollars have value only to the extent that they are strictly limited in supply. But the U.S. Government has a technology, called a printing press or, today, its electronic equivalent, that allows it to produce as many U.S. Dollars as it wishes at essentially no cost.”

The golden truth is that hyperinflation is a response to deflation and a Government’s attempt to prevent deflation.  That is exactly what Banana Ben Bernanke is doing now. Gold has gone up in dollar terms 452% since its 2001 bottom at $250 – 16%/yr on average every year – without the benefit of any perceived price inflation. Imagine the move gold will make when Bernanke’s monetary policies begin to translate into price inflation – imagine the move the mining stocks will make…

Bernanke’s entire monetary foundation is based on the devaluation of the U.S. dollar. That’s why gold has done what it’s done over the last 9 years…Got Gold?

In further edited excerpts from the original article* Larry Edelson (www.uncommonwisdomdaily.com) goes on to say:

There are really only two possible economic scenarios that lie ahead, namely:

Scenario #1: The Federal Reserve’s (and other central banks) efforts to save the U.S. economy and financial system succeed.
They might in the short term but I doubt that they will succeed in the longer term. I also believe the Federal Reserve and other central banks have largely kicked the can down the road for now, and, thanks in large part to China’s economic growth, we are seeing definite signs of economic improvement, all over the globe.

What Happens Next?
The credit crunch affecting homeowners and businesses eases … money flows through the pipeline … and the trillions of paper dollars central banks have created begin to work their way through the system and no matter how hard central bankers try to reign them in, inflation begins to move up quite sharply.

The inflation we will see, however, will be unlike past inflations. It won’t be in wages. It won’t be in real estate prices. It won’t be in the latest tech goodies. It will be fought in the arena of paper currencies versus tangible assets. After all, under this scenario, the trillions of dollars worth of fiat money flooding into the global economy will be chasing fewer and fewer goods in the natural resource sector, pushing their prices inevitably higher.

Obviously, gold will continue to do quite nicely under this scenario.

Scenario #2: Government and central banks rescue efforts fail, economies slump again, sovereign debt defaults steamroll across the globe.
Would that be bearish for gold? No way, Jose! The Fed and other central banks will just keep pumping trillions more dollars into the system, but to no avail, as they’re largely bankrupt balance sheets get exposed for exactly what they are — “Emperors and Empires With No Clothes!”

The greenback will experience the worst decline of all currencies, dramatically losing much of its purchasing power, partly due to the intentional willingness to devalue the currency coming out of Washington, and partly because all currencies will be losing purchasing power.

Gold will do quite nicely under this scenario as well.

How High Will Gold Go?
In scenario 1, I see gold easily hitting my MINIMUM TARGET of $2,300 an ounce, the inflation-adjusted high that would be equivalent to what $850 gold was in January 1980, its first major record high.

In scenario 2, I see gold easily exceeding $2,300 an ounce … and heading to more than $5,000 an ounce.

Peak Gold Production Has Been Reached
Many analysts are claiming that in either of the above scenarios, gold’s rising price will eventually bring oodles of new supply to the market, hence killing, or at least smothering the bull market for a while but, in fact, the demand/supply equation in gold is heavily tilted toward rising prices, and even far worse than the long-term dire supply picture for oil.

I would even venture to say that the world reached “Peak Gold Production” nine years ago. Consider the following …
The U.S. Geological Survey — a division of the Department of the Interior — recently announced that there are now fewer than 50,000 tons of proven gold reserves left in the ground worldwide and at current mining rates, that means the world will run out of gold within 20 years. Adding to the supply crunch is the fact that big miners are simply not finding world-class deposits. Why? Simple. Because all the elephant-sized gold deposits have already been found.

On the demand side, gold is being gobbled up in record or near record amounts in every corner of the globe. India is the world’s largest consumer of gold but China isn’t far behind with total gold consumption valued at $14 billion in 2009. Indeed, according to a very recent report from the World Gold Council, China’s gold jewelry and investment demand could double in the next decade to $29 billion. In addition, I have absolutely no doubt Beijing continues to buy gold — on the sly — on practically every dip in prices, scooping up gold in many forms, from physical bullion … to gold certificates … and even via the SPDR Gold Trust (GLD).

Why is Beijing buying gold? Plain and simple: it’s the best way China can hedge against the inevitable demise of the dollar. Bear in mind, China only has about 1.6% of its total reserves in gold, compared to 70.4% for the U.S. … and 66.1% for Germany, so if Beijing were to increase its gold reserves to just 5% of its total reserves, that would mean Beijing would buy up nearly 72 million ounces more gold. That alone would be enough to send the yellow metal to more than $2,000 an ounce.

Once Gold Closes Above $1,162 An Ounce, The Lid Comes Off
Gold is inching up on the charts, trading at $1,146 as I pen this issue. On my proprietary trading systems, $1,162 represents a critical area for gold. Once the precious yellow metal — the world’s only real, tangible form of money and wealth — closes solidly above $1,162, the lid comes off. New record highs will be seen soon thereafter.

What if gold rallies to $1,162, but fails to close above that level? No problem. Gold would simply consolidate for a few more weeks or months, between $1,000 on the downside and $1,162 on the upside but I have no doubt that gold will blast off and give me that major buy signal. Just as I have no doubts whatsoever that gold is going to soar to at least $2,300 an ounce, if not higher.

In Conclusion
- No matter what happens in the world today …
- No matter what happens in the markets …
- No matter how good the economic news may be …
- Nor how bad it may become …
- Hold on to all your core gold holdings!
- Why?

Because gold is a win-win investment, and because it’s now knocking on the door of its next rocket ride higher.

*http://www.uncommonwisdomdaily.com/ride-the-gold-market-to-glory-9142?FIELD9=1 (Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.)

Editor’s Note:
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
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