$TRILLION
USGOVT DEFICIT LOCKS 0% RATE
Few
analyst seem to report a basic factor. The USGovt cannot afford a higher rate
on borrowing costs than 0%, not now and not ever. So it will become
permanent. This is the New Normal with ugly warts. There can be no Exit
Strategy, since the government finances dictate no change. A normal borrowing
cost would mean the debt finance cost would rival the defense budget in cost,
and overshadow the Medicare cost. The USGovt deficit thus locks the 0%
rate and puts the USFed in a monetary straitjacket. They refuse to
discuss it, but instead wiggle around with feeble explanations of its
continued policy. Notice the extension into 2014 of the accomodative 0% rate.
What a farce! What a tragedy! What a pathetic excuse of a central bank! A
vicious cycle is underway where the gargantuan federal deficits require
continued 0% costs to finance them, but the 0% cost of money has its own
heavy effect and damaging toll. The biggest insurance policy to the gold bull
market is the USGovt and its runaway deficits.
DESTRUCTIVE
DAMAGE OF 0% MONEY
The
Jackass message has been steady and relentless. The 0% cost of money makes
for a grotesque distortion in asset prices, all of them. Nothing is properly
priced. The free money results in rising cost of everything rising. All
categories rise inexorably within the cost structure. Wages do not, thanks to
the forfeit of industry to Asia, in particular to China. So the squeeze on
capital continues unabated and with ferocity. Capital is killed. By that is
meant that marginal businesses and segments of business units within larger
corporations will gradually respond to higher costs (equipment, materials,
fuel, shipping) by closing the businesses. Workers are cut, but more
importantly capital is retired, equipment is turned off, and capital is
liquidated. A truck or machine or computer or telephone system might be sold
off. The rising costs and more rigid final product prices dictate business
shutdowns, since the profit margin is squeezed, then goes negative, forcing
business decisions. The destructive effect on working capital from 0% money
remains the singlemost blind spot of American and Western economists. They
call it stimulative, when it is the exact opposite. They are badly educated.
They are compromised by their paychecks. They are dead wrong, blind to the
death of capital beneath their arrogant noses. Gold will benefit from the
free money provisions, and head north of the $2000 price with ease. Gold will
serve as capital sanctuary under attack.
HEAVY RELIANCE
ON MONETARY INFLATION
As
foreign creditors continue to shed USTreasury Bonds, the USGovt is left with
a growing and near total dependence upon the US Federal Reserve to purchase
its debt. It has no choice but to rely upon the inflation machinery apparatus
to buy the USTBonds. Few bond dealers wish to continue, but their hope is not
to be stuck with inventory, should the USFed stop buying. The dealers are
acting as middlemen and nothing more. China continues to unload USTBonds, the
latest month showing more of the same recent pattern. As Valery Giscard
d'Estaing called it, the US benefits from the "Exhorbitant
Privilege" of abusing the global reserve currency to finance its own
debt in an unaccountable manner. Worse, the United States though the powerful
forces of the Competing Currency War, has forced all major central banks to
participate in the heretical 0% money policy. Nations that opt not to play
the game will suffer from a rising currency exchange rate and damaged export
industry. The major central banks are collusive in their policy, the
effect being a Western world capital destruction slow burn. See the
Global QE as it involves the US, Britain, Europe, and Japan not only in
setting interest rates absurdly low, but in vast bond purchases wrapped in
monetization schemes. Once upon a time 20 to 30 years ago, such schemes were
called highly destructive and extremely unwise. Today they are normal tools.
Gold will benefit from such powerful monetary inflation and debasement of
money itself.
COLLAPSE OF
SOVEREIGN DEBT FOUNDATION
The con
game is impressive. They call debt money. The entire foundation of the
current monetary system is a complex array of paper currencies backed by sovereign
debt. The problem for its managers is that the sovereign debt is crumbling.
The degradation process began in late 2009 when Greece showed its first
visible wide cracks in the debt facade. The preliminary event was the Dubai
debt breakdown; call it the fuse. So the financial press, banking leaders,
and political marionettes insist on calling this chapter a global financial
crisis. It is more like a global monetary system collapse, if truth be told.
But in today's age the truth is a dangerous commodity, kept down in value by
a cooperative subservient press, devoted fully to the syndicate and its dark
motives. Holding like pillars the debt-based monetary system are the major
banks. Their profound insolvency serves as proof positive of the broken structures
of the monetary system itself. This is so plain to see. A mere FASB paper
mache glued onto a rotten pillar does not permit it to bear weight. The
legitimate matter behind the pillars is surely being siphoned as mass to
other locations, while the farce of patch solutions continues with each
passing month. The inescapable fact is that the world requires a new monetary
system. To put it into place requires the liquidation of the old banks and
sovereign bonds, which would mean making paupers and vassals out of the elite
masters. So the game goes on.
USECONOMY
MORIBUND WITHOUT INCOME
The
concept of a jobless recovery is a bad joke. Such a concept does not appear
in economics textbooks or its legitimate lexicon. The expectation of recovery
without vast income machinery is a fantasy. The decision to ship US industry
to Asia in the 1980 decade saw a climax in the 2000 decade with the advent of
China. In doing so, the USEconomy lost its legitimate income sources and
turned to inflating assets to power the national economy. It was the
singlemost destructive trend in modern United States history on a financial
basis. Income was replaced by debt, and the rest is history, where
economists should be forced to inscribe the epitaphs. Stimulus programs at
the USGovt level are mere plugs for state deficits. Infrastructure projects
turn out to be funnels for Chinese contracts. As Kurt Richebacher told me in
August 2003, as best recalled, "A
nation that lacks industry is doomed, as it must at least dominate in
transportation and steel, but the United States does not anymore."
The financial press and banking leaders curiously serve up endless nonsense
in viewpoints, that the US consumer is the engine. It is not. The engine is
industry, and the USEconomy sorely lacks it. Unless and until the USEconomy
brings back industry, factories, and all the supply chain encoutrements, the
nation will remain moribund and without adequate income. The latest data, the
December trade gap, shows a record setting $52.5 billion monthly deficit. This
is not an economy in recovery. The rising energy prices are yet another
crippling factor. A loud echo can be heard in Japan, where the nation is
shocked by the reality of steady trade deficits, never seen in recent
history. The power structure is to be turned on its head.
HOUSING MARKET
RUINED
As China
took a giant bite out of the US industrial sector, the world gave acclaim.
Cheap stuff appears a good thing until the reality of lost income hits. The
lower costs forced the US housing & mortgage bubbles toward their
heights. The dependence by the USEconomy upon the housing & mortgage
sectors became acute. The broken asset bubbles of homes and linked bonds
spelled ruin for the USEconomy. A vicious cycle has developed, that even
ultra-low mortgage rates cannot solve. The banks are becoming prominent
owners of vast home inventory. They cannot dump their inventory. The big
Fannie Mae presence is very much in play, a sign of corruption dominating
since the agency covers up the mortgage bond fraud that reaches into
$trillions. Each year, clownish voices proclaim a turnaround in the important
housing sector. Each year the home prices go lower, precisely as the Jackass
has forecasted. Imagine a nation so stupid as to depend not on industry and
factories for legitimate income in value added enterprise, but instead on
rising prices of home and property assets. Incredible! The next shoe soon to
drop is the commercial sector finally, which has been protected and carried
along for over three years. The dumping process has already begun. More bank
balance sheet damage is to come. Neither the housing market can be
liquidated, nor the bank sector can be liquidated, tied at the hip. The
economy that depends upon both is surely halfway to the morgue. The collapse
in progress should result in a different power structure.
BIG BANK
LIABILITY DEALS
The
parade of legal deals to limit the vast bank liability is a travesty to
watch. Any reasonable analysis puts the liability risk at $2 trillion or
more. Yet the cap on managed risk will be set at a mere $25 billion in
widespread alleged mortgage fraud abuse. Each deal that comes up has the
final figure a mere fraction of the true fraud. That makes for a favorable
bank outcome. It reminds one of the Wachovia money laundering deal struck in
2009, no guilt admitted, the case kicked under the rug. The big bank was
caught with hundreds of $billions in laundered funds from the Mexican drug
cartel. The ultimate fine turned out to be about 0.03 of one penny per dollar
laundered. The cost of the mortgage fraud and bond fraud abuse will be
similar, much less than 1% of the amount involved. The goal is not only to
limit liability, but to move on to new structural arrangements that erase the
past bond fraud. A new contract over-writes the old in a merger of contracts,
technically speaking. What the big banks cannot shovel into the Fannie Mae
outhouse under USGovt aegis, they will protect with ring fences built from
court settlements that are vastly out of proportion to the crimes involved. Nothing new here.
GOLDMAN SACHS
REVEALED
The GSax
brand is being tarnished. To be sure, they remain a fixture in the USGovt
finance ministry. Its diminutive leader Geithner makes absurd moronic
pronouncements from time to time. A couple weeks ago, he claimed the crude
oil price was rising from a strong USEconomy and its growth path. Nevermind
the war drums over Iran. Nevermind the vast USFed monetary printing project.
Nevermind the anti-US$ movement within the oil world. Geithner more recently
proclaimed that more commonly seen Chinese Yuan bond issuance and loan grants
would have a muted effect on the USDollar. He lives in a fantasy world
indeed. In 2008, an important event occurred when a Russian fellow escaped
with a proprietary GSax unix box complete with software, which enabled
insider trading that peeked at the order flow. The FBI covered it up quickly
and dutifully, in true Fascist Business Model fashion. But GSax has taken
major blows. They have been caught concealing the Greek Govt debt condition,
as it entered the Euro Monetary Union over ten years ago. Widespread
investigations are ongoing within Europe, and the venerable firm cannot
solicit protective help on the continent. Matt Taibbi would be pleased. The
most recent case close to home involved Overstock.com, which was preyed upon
by Goldman Sachs and Merrill Lynch, as the Wall Street firms engaged in naked
shorting of its stock. But isn't Wall Street exempt from naked shorting
statutes on the legal books? The court decision made the case known to the
public, more details to come. A wise veteran once shared that to become a
GSax vice president, one major fraud must reside on the professional resume,
which was not prosecuted. He was not joking. It is a criminal enterprise. The
Greek bond situation might still result in tremendous GSax loss if not
censure. Let's see if the GSax preppy Monti remains in unelected office in
Italy.
END OF
EQUILIBRIUM MARKET FORCES
Even
USFed members notice that financial markets are being rigged. The phenomenon
is obvious to anyone with an above average financial IQ. To point a finger at
regular 10am and 3pm stock market recoveries should include a mention of the
Working Group for Financial Market. It never does in the media reports. The
USEconomy is stuck in the worst and most destructive recession in modern
history, yet PE ratios remain robust. The bond market is the toy of the USFed
itself, propped by $trillions in purchases. The USFed purchases at least 75%
to 80% of all USTreasury offerings. The Operation Twist has been stripped of
its fig leafs. The Dollar Swap Facilities are mere QE programs with a beard.
The fact that the bond market has few if any buyers should be the main story.
Sadly, the USGovt requires a weak economy in order to create more bond
demand. Another vicious cycle is at work. The market mavens tend to cheer for
interventions, even though the integrity of the markets themselves is fast
draining into the sewer pipes. The mavens cheer at USFed bond purchases for
its liquidity infusion, without much awareness of the absence of legitimate
money. The USFed has become the quasi banking system, ever since the
subprime mortgage mess hit, ever since the commercial paper market dried up.
Yet it is failing. The indirect consequence of 0% money is distorted asset
prices and extreme distortion of financial markets, all of them. The stock
market is intervened upon. The bond market is directly controlled. The
currency market is managed by the Exchange Stabilization Fund, which never
receives press attention. The crude oil market is a vast playground, like
when the Strategic Petroleum Reserve is released, or when the Gulf of Mexico
is shut down, or the Keystone Pipeline is rejected. The Brent versus West
Texas oil price spread has gone to $18 again. The grain market is twisted by
wrong US silo inventory data. No end in sight to muddy financial markets. The
housing market is one of the most difficult to doctor, but even it has a vast
hidden inventory held by banks.
TEETERING
PETRO-DOLLAR STANDARD
The Iran
sanctions have undercut the USDollar more than any other single item. The
Petro-Dollar is at risk. Many times in my articles, a warning has been
scribed that the Dollar Kill Switch is ready on the wall, fully constructed,
awaiting word to flip the switch. Someday in the not too distant future,
the Saudis will announce acceptance of non-US$ payments. They have already
made the supporting decisions toward this highly important step, related to
Persian Gulf security enforcement. The numerous bilateral oil trade deals
with Iran have become an epidemic that infects the USDollar in its unilateral
dominance for trade settlement. One big reason Saddam Hussein was removed was
his decision to accept Euro payments for crude oil. Another was to steal his
gold, just like what happened in Libya. Another was to abrogate oil contracts
made between Iraq and Russia as well as between Iraq and China. So as the
many bilateral deals are struck with Iran, the USDollar foundation in trade
settlement is crumbling, in parallel to the sovereign debt crumbling (see
PIGS debt), in parallel to the USTreasury Bonds crumbling (see foreign
creditor departures). The bunker busters might drop, but the real damage is
to the stable catbird seat for the USDollar itself in trade settlement. Such
trade is conducted less and less in US$ terms. Asia and the Middle East are
leading the movement away from the USDollar.
GLOBAL USDOLLAR
REVOLT
The
developing nations of the world are in revolt against the USDollar. They see
no future in holding US$-based bonds in reserve. They see no future in
accepting US$ payments for their raw commodities and finished products. The
secondary central banks of the world are increasingly stocking up on gold
bullion and less on USTBonds. Some are actively converting from paper
reserves to gold assets, like China and Russia. Many other nations are
following their important lead. A more recent development has the BRIC
nations blocking the IMF. They are cooperating less in Brazil, Russia, India,
and China. The concept of the Chinese Yuan is being pushed, like in
compromise, which includes a greater voice of the East and a smaller voice of
the West, in particular the United States. The gold price will continue to
benefit as long as the global revolt continues against the USDollar.
BARTER SYSTEM
COMING
The current
system must be replaced. Watch for signs of a vast comprehensive barter
system with wide participation. It will involve deals between nations at the
highest levels. It will involve deals between corporations at the middle
levels. It will involve deals with individuals at the lower retail levels. It
will be more fair. It will relegate banks to utilities, a much more useful
function. It will lock up deadbeat nations that attempt to take in valuable
products in return for toilet paper that accumulates in a rancid pile subject
to acidic decay. The new barter system must have a financial core in order to
handle the short-term transactions and payments required. That core will be
gold based. The United States will not be at the center of this new system.
In fact, the US risks being shut out if it does begin soon to join the
movement. Being an outsider nation looking in will result in high price
inflation and more rampant shortages. Demand for gold will rise as the new
system falls into place. The system has been endorsed and put into the
implementation stage by Germany, Russia, China, and the Persian Gulf. The
trigger for launching the barter system, so told to the Jackass by one of its
participating architects and engineers, is the broad perception that the current
system has collapsed. That day is nigh.
THE HAT TRICK LETTER PROFITS IN THE CURRENT
CRISIS.
Jim Willie CB, editor of the “HAT TRICK LETTER”
home: Golden Jackass website
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