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Events
in the last decade displayed a vigorous effort to defend the USDollar. The rogue nation of Iraq sold crude oil in
Euros for three years, until they were liberated. Its tyrant was a scourge to
be sure. Weapons of financial mass destruction seem to have replaced the
traditional type, the new variety being derivatives, mortgage bonds, and even
sovereign bonds from weak nations. Newer weapons from the United States
feature extended hands from clearing house fronts that snatch and grab
segregated private accounts, and backdoor raids of exchange traded fund
precious metal. Let's not overlook the more frontal assault weapons deployed
like unseating Qaddafi and capturing his gold held in foreign accounts, along
with all that cash. Liberation has its benefits. The confrontation with Iran
would be comical if not so dangerous. The claims have been silly in my view
for years, in the perception of Iran as a serious threat to the West. They
have been subjected to cut communication lines on the Persian Gulf seabed.
They have been subjected to Stuxnet viruses to
obstruct their nuclear refinement process, via the Siemens rear door. They
have been subjected to an influx of heroin from the north, where the USMilitary manages the Afghan situation and locale.
To
be sure, Iran's clergy qualify as a bunch of clownish fools with a tight grip
on power and security forces. The shock here is that the relatively educated
Tehran crowds have not disposed of their corrupt class of leaders. The clergy
has been skimming from oil revenue for years, complete with hidden Swiss
accounts. The same goes for the
American corrupt class of leaders, with their USDollar
control levers, their failures to deliver USTreasury
Bonds (aka naked shorting by Wall Street firms), their hidden mechanisms
behind Quantitative Easing to Infinity (QE never stopped), their insider
trades to exploit financial markets (flash trades with a peek), their ETF
dampers on numerous individual markets (regular inventory raids by Wall
Street), their nationalization of Fannie Mae & AIG in order to put the
fraud records in a warehouse (bond counterfeit, duplicate income stream
usage), and their absurdly positive economic drivel data (more like chronic
10% CPI and chronic minus 3% GDP).
The
big events in the last several weeks focus on the inability for US combined
forces, both military and financial, to put Iran on a leash. The Tehran
mongrel still roams and shares meals with neighbors. The Hat Trick Letter
does not delve much into geopolitics and military weapon analysis, but the next generation Sunburn and Onyx
missiles that Russia has supplied to Iran stand out as significant in their
ability to neutralize great opposite forces. These two missiles are a
step ahead of the Cruise, something perhaps not 5% of the US population is
aware, but something that 95% of the USMilitary
brass is aware. The US Fleet in the Persian Gulf might be rather easy
vulnerable targets. The annual August belligerent war posturing against Iran invited
my dismissals from 2004 to 2005 to 2006 to 2007 to 2008 to 2009 to 2010. But
in 2011 the posturing and siren calls seemed more serious, yet still worthy
of dismissal since waged battle would render massive damage to both sides.
See Sunburn & Onyx again. The military maneuvering behind the scenes is
not so easily tracked, which lately has extended to Syria with a Russian
shadow. The entire reduced theater
seems chock full of standoff factors. China might have sounded off
threats of retaliation if Iran were attacked, but Russia delivers the same
threats in more subtle private tones.
The USGovt has attempted to isolate Iran. To some
extent they have succeeded. Price inflation inside Iran has turned acute,
with numerous stories seeping through the information curtain. The pain, just
like in Cuba, has been handed to the people and hardly to the leaders. One
can be very certain that the mullahs continue to enjoy the good life, work
little, eat well, enjoy ample time to pray, while skimming $million every week
from oil revenues. However, a defiance seems more
successful at the higher levels. The trend of bilateral trade deals fashioned
by China has been growing, made popular by the same grand holder of over $3.2
trillion in US$-based debt securities of dubious value. Behind the trade
deals are agreements to continue in crude oil purchases from oil-rich Iran.
INDIA CAUGHT IN CROSSFIRE
India shows up as a secondary
victim of Iranian sanctions.
The controversy between the two nations has lingered for a couple years. India received 11% of its crude imports from Iran
last year. In an end-around maneuver, the nation is exploring the option of
making payments for crude oil purchases through the giant Russian
Gazprombank. No deal has yet been reached, but it is close to final. Russia has
abstained from sanctioning Iran. Some analysts believe this payment route
might work for India. Other alternative routes involve Turkey as intermediary
on payments, except Turkish leaders appear to reject new proposals. The Bharat
Petroleum Corp based in India had begun buying about 20,000 barrels per day
of Iranian crude oil through a term contract in September. Now though, BPCL
is considering whether to stop taking supplies. Other Indian companies that
buy Iranian crude include Essar Oil Ltd and Indian Oil Corp. Contracts for
other Indian buyers of Iranian crude oil tend to run from April to March. The
refiners reportedly have yet to renew their deals with Tehran for the next
financial year.
The cumulative Indian debts to
Iran from refiners for purchases rose to as much as $5 billion in July,
according to the Indian Central Bank. The outstanding payments threatened to
jeopardize about $9.5 billion in annual trade between the nations. Officials
in Iran have informed customers they would no longer receive August shipments
unless the bills were paid. In a complex network, the refiners started
clearing the outstanding payments in August after Halk Bank in Turkey agreed
to make transfers. The middleman bank has gained a reputation in the oil
market over the past 18 months for handling transactions related to trade
deals with Iran. The recently passed legislation by the USGovt imposes
sanctions on financial institutions dealing with Iran's central bank, thus
putting Halk Bank squarely in the spotlight. India is worth watching
closely as a test of the strength of sanctions. Watch for work-arounds,
especially with Russia. The Turks do not have the required muscle. The
Russians do. The Kremlin leaders are highly motivated to knock a wheel off
the American wagon that seems to trample pedestrians all too often.
SCO REVISITED
During
the 2002 to 2005 period, the Shanghai Cooperative Organization aroused a
considerable amount of publicity. It was originally a cultural exchange group
between Russia and China, led by the surviving republics of the Soviet Union.
Its agenda grew to include security matters. Then later still, commercial
trade and commodity supply entered the picture, as the resource rich nations
lacking in economic development banded together. The added twist was the
inclusion as guest SCO members such nations as renegade Venezuela, Iran, and
others. The SCO defiance began to escalate right about when the organization
faded from view. It never faded away, only from view, as it coalesced into a
powerful movement behind the scenes. SCO
became a hidden movement to build fortifications in opposition to the USDollar. Its main thrust has been gold accumulation in
the shadows.
The key to comprehension on SCO
matters is to realize that all countries in the Shanghai Coop are working
vigorously to bypass the USDollar, and all are increasing their gold
reserves. They work in much more secrecy, probably at the direction of
Kremlin and Beijing leaders. They have learned that avoiding direct
confrontation and sanctions is the path to take. The proposal to end usage of
the USDollar in bilateral Russian-Iran tade came from Moscow, not Tehran. One
can be absolutely certain that Kremlin leaders are as stiff spined as they
are motivated to challenge the USGovt and Wall Street leadership. They
remember all too well the Yeltsin years and the Western oil company role. The
proposal to switch to the Russian Ruble and the Iranian Rial was raised by
Russian President Dmitry Medvedev with his Iranian counterpart, Mahmoud
Ahmadinejad, at a meeting in Kazakhstan. It was staged without herald as
an continuance of the Shanghai Cooperation Organization. Iran has replaced
the USDollar in its oil trade with India, China, and Japan. At the cusp of
developments is a potential deal that could bring an important linkage
between crude oil and commodity trade settlement outside the USDollar, with
provision for funding the European bank rescue fund, the European Financial
Stability Facility. The concept was raised by the intrepid indefatigable
Tyler Durden (bloodied but resilient) of the Zero Hedge crew. The bypass of
the USDollar in trade is likely soon to be engrained in the financial system.
The American trumpets continue to promote the notion that all global trade is
done in US$ terms, when the reality is far different, and the trend is in the
opposite direction, as in global revolt.
Actually, the ZH crew merely took
the ball and ran with it, as they do so adroitly and consistently. In my
opinion, the Zero Hedge web journal is by far the most valuable and broad
single source of relevant information in the global financial crisis, bar
none. The German newspaper Bild am Sonntag had said Klaus Regling (CEO of the
European Financial Stability Facility) is pushing to increase guarantees to
up to 30% for investors external to the EuroZone, the amount confirmed by a
fund official. Although the guarantees were non-existent a year ago, EFSF
officials have stressed that state guarantees had always been planned to
range from 20% to 30% range, and furthermore, such offering should not be
interpreted as a deepening of the endless debt crisis. Such denials serve as
clear direct confirmation of a deepening crisis. Clearly, the guarantees
provide incentive to attract foreign funds. The nations with big foreign
reserves like China have turned their noses up at Europeans in recent rounds.
The Beijing leaders want more on the table. Think industrial collateral.
Think access to central bank gold. Think official bypass of the USDollar in trade
settlement. Think consolidated resistance to unilateral pronouncements. Think
indirect action to isolate the USGovt and its corrupt financial fortress.
IRAN & RUSSIA REPLACE THE USDOLLAR
Iran and Russia have replaced the
USDollar with their own native currencies, thus solidifying trade ties.
Tehran's Ambassador to Moscow Seyed Reza Sajjadi claimed that the proposal
for replacing USDollar with Ruble and Rial was raised by Russian President
Dmitry Medvedev in in Astana Kazakhstan during a sidelines meeting of the
Shanghai Cooperation Organization (SCO) meeting. He added that many
Iranian entities are using Ruble currency for their trade deals. The
Kremlin leaders stand against unilateral sanctions on Iran conducted outside
the UN Security Council, their position in diplomatic circles, which
WashingtonDC avoids. The USGovt has a long track record of making unilateral
decisions, and attempting to impose sanctions on third party nations, all
done without the blessing of global bodies. The Russians have clearly
announced that they will not accept broad sanctions. The central bank in Iran
is working feverishly to to circumvent and overcome plans to isolate it and
cut off income. The sanctions directed by the USGovt cut off from the US
financial system foreign firms that do business with the central bank in
Tehran. Many even in the West believe that the move would prove futile. Most
Iranian oil sales are processed by the central bank. The means to avoid the
sanctions is to conduct trade settlement outside the USDollar, where the
USFed would not act as processor. The peripheral impact is felt with
intermediary entities such as Turkey's Halk Bank, which will likely choose to
step aside and not risk being stepped on by American jack boots bearing
London brand.
During the last two years, Iran has been replacing the
USDollar with other currencies in its trade with the outside world. Iran has replaced the USDollar in its oil trade with India, China, and
Japan. Late in November, the Reserve Bank of India (RBI) granted the
necessary permission to the Central Bank of Iran to open Rupee accounts with
two major Indian banks, seen as a solution final to the payment problems.
While payments for Indian oil imports would initially be in Rupees, they
would be converted into a separate currency, which was yet to be decided by
the Apex bank. Conclude that USGovt sanctions provide the fertilizer for a
seedbed in non-US$ trade settlement. The American strongarm tactics are
meeting with stern resistance, as the backlash gathers momentum and
intensity. Iran could become a broken plank in the US hegemony. History is
not likely to repeat. The Iraq challenges with Euro-based oil sales led to
the invasion and annexation. Iran has too many partners in Russia, China,
Japan, and India. Without any dispute, Baghdad was defenseless. With almost
ten years to fortify its partnerships, Tehran is not defenseless. The next
few months will demonstrate it.
JAPAN & CHINA BYPASS USDOLLAR
In a gesture loaded with
defiance, Japan and China have embarked on a trade deal that directly
bypasses the USDollar in settlement. One more platform of the USDollar global
fortress has been shown to be dismantled. Its hegemony is ending, although
slowly. The mercantilist relationship held firm between China and the United
States has shifted into reverse during the trade war in its third year, a
trade war fully anticipated and forecasted back in 2005 and 2006 and 2007 in
the Hat Trick Letter. With the new pact, Japan and China have made the arrangement
public. They will promote direct trade in Yen and Yuan currency without
USDdollar usage, in order to encourage the development of a market for the
exchange, and to cut costs for companies. The real surprise was the
announced plan for Japan to buy Chinese bonds in the current 2012 year.
Confirmation came from a meeting between Prime Minister Yoshihiko Noda and
Chinese Premier Wen Jiabao in Beijing in late December. Considering the huge
trade volume between the two biggest economies in Asia, the pact is
significant. Look for continued Yuan appreciation, and all the problems it
will cause to their export industry.
Some shock waves are coming to
the FOREX markets, where the USDollar is still seen as king in official
circles. The year 2012 will prove to be highly disruptive to such a
perception. The primary motive behind the bilateral trade deal is to reduce
currency risks and trading costs. Currently, about 60% of trade transactions
between the two nations are currently settled in USDollars, a practice to be
reduced. China is largest trade partner to Japan, bigger than the United
States, thanks to colossal direct foreign investment by American and European
firms for a full decade. China already purchases Japanese debt securities. In
turn, Japan holds $1.3 trillion of FX reserves, the world's second largest
war chest. They wish to purchase Chinese debt securities. Nothing will stop
this movement. The list of imminent investors in Chinese debt is growing,
from Austria to Thailand to Nigeria. The ultra-low USTreasury Bond yields,
corrupted by Interest Rate Swap applications, fails to reward investors for
risk. The USGovt deficits are chronically over $1.5 trillion annually.
The growth in cumulative debt assures continued 0% bond yields and
artificially low borrowing costs, a new constant for foreign investors to
turn more toward China. The United States is fast losing its dominance, which
when abused is called hegemony. The hegemony has been ripe and fierce since
2005. The volume of Chinese Govt Bonds denominated in Yuan has tripled up to
2011, with volume of $18 billion. Funds are moving away from the West, where
sovereign debt has turned toxic and government deficits have grown like vast
weeds and austerity plans are more like designer suicide pills.
USDOLLAR RISES TOWARD THE CEMETERY
Back in the spring months of
2009, the Jackass penned a public article called "Dollar Death
Dance" that was well received. When the system was going through an
implosion phase, albeit temporary, the demand for USDollars rose sharply. What
followed for the last three years has been a gradual inexorable powerful
pathogenesis toward monetary system collapse, the focus having shifted from
the US to Europe. The US$ demand came from banks required to cover their
US$-based debts. Recall the USFed was the first to promote an ultra-low
official interest rate several years ago. So its loans were huge to Europe,
England, and elsewhere. Also, the ruinous derivative trade suffered a shock
wave. The settlement of derivatives, such as a bond insurance contract, tend
to be exclusively in USDollar terms. The second chapter to this trend is well
along. Call it the second song to the Dollar Death Dance. The woes in Europe
are translating into more US$ demand, as funds flee the fires of European sovereign
bonds turned toxic, as funds flee the big European banks that must meet
reserves requirements, as funds in money markets return to US shores, as
funds cover the derivatives.
By the way, the derivative market
must qualify as the most corrupt in human history, totally unregulated, the
liferaft tossed to a sinking bank system, the source of huge income, against
a backdrop of obstructions on payouts for both financial firm failure and the
sovereign bond defaults. A restructure does not a failure make. All the
regulators and bank officials did was to declare a bond loss as a non-event
in the default world. They called it redefinitions, recalibrations, total
nonsense and corruption to the core. The bank leaders continue to make
claims that counter-party positions offset and canceled each other, when the
reality is more like they assure mutual destruction and simultaneous death.
When the first Italian bank goes bust, a French bank, a German bank, and a
London bank will all turn to dust immediately. One day later, a New York bank
will follow to the glue factory.
The
USDollar is due for some extreme shocks. Some might
not think so, given the Euro depression in sentiment and the rattling of big
European banks. Word has come that in late February and late March, some
important adjustment events are due to kick in, enough to knock over the
tables in the temple. Conjecture is wide open and ripe for imagination. For
the USDollar to continue its catbird post in global
trade is inconceivable. The elite controllers will do their best to keep the USDollar in its dominant post. But the rest of the world,
especially on its Eastern locales, is working in the other direction. As a
sage contact told me last week, "There
is a clear swing in power to the East, not to return Westward in our
lifetime." The primary victim of that pendulum swing, a powerful
Paradigm Shift, is the USDollar. The consequent
beneficiary will be Gold, and its squire Silver. A complete list of forecasts will not be given here,
since too dangerous and ugly. The world financial system will not survive in
its current form. A collapse is due probably by late 2012, or early 2013
after the US presidential elections, another controlled event subject to
outsourcing.
THE HAT TRICK LETTER PROFITS IN THE CURRENT
CRISIS.
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