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A grotesque
grandiose nationalization initiative is gradually being forced upon the
USEconomy, US financial
system, US political
system, and the hapless US
citizenry. Its crucible for construction comes from the desperate situation
unfolding for the banks, the mortgage holders, and homeowners. Rising costs,
falling incomes, failing banks, declining home values, eroding mortgage
bonds, interfered financial markets, corruption in Congress, endless war,
destructive economic counsel, an unconstitutional USDollar without gold
backing, these factors all contribute toward a crisis without remedy. The
only possible response will be an implosion with greater state assumption of
losses, responsibility for operations, and extended power. Systemic
failure, credit seizures, profound job loss, severe supply disruptions, and
violence in public places will force a more urgent solution. The irony is
that the agents and mechanisms that produced systemic failure will next be
granted almost total power as reward for their ineptitude, corruption, and
connection to the power centers. Reaction to systemic failure, orders for
nationalization, and other desperate measures ensure the USDollar will fall
significantly, leading to gold rising toward 1500 and silver rising toward 40.
WE ARE
BEGINNING THE ACUTE PHASE OF BANK AND BOND BREAKDOWN NOW, WHOSE EPICENTER HAS
EXTENDED FROM WALL STREET
BANKS TO FANNIE MAE. THESE GROUPS ARE THE PRIMARY CENTERS FOR CRIMINAL FRAUD,
ALL TO BE BAILED OUT. A broad bank asset liquidation in several weeks will
exacerbate the crisis and invite immediate action, some of which might be
well orchestrated in a power grab. The solutions will all appeal to the
current devices, which tend to mean greater state controls. The authorities
seem totally lacking any list of alternative methods. With bailouts come
controls. If truth be told, the failure is of economic policies, the scummy
relationships between the USGovt, the US Federal Reserve, the Dept of
Treasury, the regulatory agencies, the Wall Street bankers, several giant
banks, debt rating agencies, certain private equity firms, and the media news
networks. Some wonder why media networks would be so subservient, not report
stories of substance. Check their advertisers, which pay the bills, and also
check where they obtain much of their international information. The USGovt
supplies data, interviews, video clips, and stories for reasons of
efficiency, safety to correspondents, which tends to permit a gradual slant
that has turned absurd over the years. Many stories just are not covered at
all, like recent foreign summit conferences among banking groups, in Asia and
South America.
Harken back
to my first article in January. It is worth a quick review read. In “Enter
2008: The System Breaks” (click here)
numerous systemic factors were listed. Many are infesting our doorsteps,
fouling our economic winds, and dampening national psychology to the point
that the nation had best prepare for change that will rival those ordered at
the tail end of the Great Depression. This economic depression will be
different. It will be called a recession. The losses incurred will be an
order of magnitude larger. Instead of Wall Street bankers jumping out of
windows, they will take top USGovt agency spots for wresting control. The
nation is not ready to institute national infrastructure programs like the
TVA back in those day. Hurricane Katrina and the Endless War amply
demonstrate that priorities have shifted toward private profiteering and
corruption being the primary priority for national leaders. People will not
stand in bread lines, but rather break into supermarkets in search of food.
Home ownership was not at any lofty figure back seven decades ago. People now
will continue to lose their homes at the tune of 7000 per day due to
foreclosure in the Untied States, the current tragic pace. The housing market
will continue down, led by endless growth in unsold inventory. The advent
will dawn on the bankers, lawmakers, and key investors that Fannie Mae is
sitting on a treasure trove of income potential, IF ONLY the acidic agency
can rent its foreclosed properties instead of attempt to sell them on an already
depressed bloated market. The Fannie Rentals will emerge as a business
segment.
NATIONALIZATION TREND
The
following industries are on a clear path toward nationalization, in order of
likelihood:
- Fannie
Mae & Freddie Mac (mortgage finance)
- major
banks
- airlines
- Detroit
automobiles
- gasoline
& diesel refineries
- some transportation systems including trucks,
railroads
- home rental (limited to Fannie Mae properties)
- steel
industry
Already,
the Federal Deposit Insurance Corp (FDIC) will guarantee bank losses on
accounts up to $100k. Another federal agency guarantees bond & brokerage
accounts up to $500k. Already, the Pension Benefit Guarantee Corp will pledge
to provide up to 35% of pension income for anyone whose corporate pension is
lost or reneged upon. In the absence of any insight, imagination, or
independent thought, the nation will resort to the state to underwrite the
losses, and thus to institute measures toward remedy. Enter Big Brother with
a checkbook, or better described as a credit card, no no a printing press!!!
However, most solutions will simply be patchwork with restoration of order
the main theme. The system will turn to the same broken apparatuses that
killed the system, ensuring degradation and more need for control. Eventually
martial law will fit like a glove. The result will be an ugly outcome a
few years from now, marred by shortages, and eventually managed shortages, as
in rationing and price controls. This fits perfectly with the next
chapter of the Fascist Business Model. That would be a broader tighter state
control with the collusion of bankers. The selective enforcement of law will
be much worse than simply limiting short selling against financial stocks.
We have
begun to see what finally has been labeled as ‘Financial Triage’
among the financial firms. The authorities are probably
unable to price Fannie Mae bonds, heavily tied in spread contracts to
USTreasurys. The USFed, Dept of Treasury, and Wall Street control agents have
been forced to decide which firms must be rescued immediately, which are too
big or important to fail, which can be permitted to die without unduly
harming the system, and which cannot be tended to as in benign neglect. The
resemblance is to the soldier battlefield. The theme that strikes very
clearly is that the US Federal Reserve and its agents will continue to bail
out bondholders, but let stockholders wither and die. Bonds are typically
held by the elite, while stocks are usually held by commoners. The usual
arguments are used when the bankers trot their easels, promotional byline
notes, and weak reasoning before the dimwitted and angry legislators. They
talk of systemic risk, and hordes of innocent being trampled among the public
if action is not taken. The rescue initiatives are very tilted to aid the
wealthy, and to deliver price inflation to all. However, one must note that
the wealthy have never taken such enormous losses in modern history, as they
are today. Their woes are nowhere ended. Look for Union Bank of Switzerland
to fail in Europe. Look for Royal Bank of Scotland
to fail in England.
Look for Commerzbank to fail in Germany.
Look for the Canadian Imperial Bank of Commerce to fail in Canada.
Look for numerous to fail in the US,
the epicenter of the big bank bust.
FIRST FACE OF MELTDOWN
I CONTEND
THAT FANNIE MAE IS THE PRIMA FACIE OF THE END OF THE US
FINANCIAL EMPIRE. Fannie Mae, the national US
secondary mortgage supplier and vast agent to assist in controlling interest
rates, is failing. Their high jinks maneuvers a few years ago to buy their
own debt securities constituted self-dealing and self-propelled Ponzi
methods, doomed to disaster. Denials are thin. All talk about not
nationalizing the firm is confirmation of eventual nationalization. All talk
about its equity not being destroyed is confirmation of an eventual zero
stock price for FNM shares. All claims that Fannie Mae remains structurally
sound are about as false as a claim that USGovt statistics are accurate. All
denials of their insolvency serve as confirmation that they are indeed badly
over-burdened by debt obligations in excess of assets. All claims that their
implosion, meltdown, and failure are unlikely should be heard as clear
confirmation of precisely that risk.
Removal of
the short rule on upticks on the US-based stock exchanges has contributed to
this mess, opening the gates of corruption. Fannie Mae might be the
biggest lynchpin involved in such short practices. It has $500 billion in
short-term rollover debt commitments, around $10 billion per day. It
might be on the verge of illiquidity, with insolvency masked in the
background. The Federal Reserve Bank of New
York has been given authority to aid Fannie &
Freddie directly. Its $2.25 billion credit limit is inadequate by a factor of
one hundred. Fannie & Freddie own over half the entire US home loan
mortgage market. What we are witnessing is Wall Street in increasingly public
demonstrations of desperation trying to rig the rules to favor themselves, and
reduce the risk of a total death episode, sure to inflict additional
tremendous personal loss for the conmen bank executives. Still they are not
even required to sidestep criminal investigations and court defense for
billion dollar fraud.
The focus of
attention inside the distressed US
system has been on US banks and investment banks for a long time. Fannie Mae
has avoided attention, well hidden within the bowels of the USGovt. The bank
deposit runs, like has begun with Indymac, coincide with the renewed
attention for the Fannie Mae national disaster. They are related. If Fannie
& Freddie go bust, then we could see dozens of banks suffer sudden death
overnight. Nothing in the insanity of the US
mortgage morass epitomizes better the recklessness, risk acceptance, and
criminality than Fannie Mae. It is also the object of intense, pervasive,
systematic, and very deep crime syndicate activity, some linked to USGovt
agencies. In my opinion, few have given serious consideration that Fannie Mae
& Freddie Mac (F&F) must be bailed out, or else a large cast of ugly
dangerous people will be exposed for two decades and hundreds of billion$ of
fraud, theft, corruption, and crime syndicate activity. More can be said on
this point, perhaps even touching past presidents. F&F cannot be
liquidated with full disclosure and resolution of colossal criminal fraud.
CHANGING
TRENDS
The precious metals mining stocks have vastly
outperformed in the last two months time. Since June, the HUI has risen much
more than the XOI, the energy stock index. Energy had its big run, and now it
is the turn for gold & silver miners. Much crude oil money will flow into
gold. The green circle highlights the recent rise in mining stocks over
energy stocks.
Since the springtime, a pronounced negative correlation
is vividly clear between the HUI and the mainstream S&P500 stock index. As
the banks and most every other sector drags down the stock market, during
that time the precious metal mining stocks have benefited. This rare
negative alignment is ridiculously favorable for mining stocks, and very
welcome news. Por fin! (finally!) The
mining sector is receiving positive press, more respect, and some recognition
as a viable hedge from the prevalent deep price inflation witnessed on a
global basis. Wait until the bank runs come in force! The
flight into gold will be profound. The green circle highlights the recent
rise in mining stocks over mainstream S&P500 stocks.
THE KEY TO GOLD
In my view, that
key is the bank system bailouts, including most importantly Fannie Mae. Since
last August, when the bank crisis began, gold launched into record territory,
only to continue soon into higher record territory. Their USGovt federal
guarantee will open the door to other bailouts and nationalization movements.
The most profound of the upcoming socialist actions will be the assumption of
the Detroit
carmakers. This event will be promoted in order to save jobs, to prevent
enormous supply chain damage, even to assist in some military supply
contracts. An argument will be made that its assumption under the national
umbrella will offer stronger support for the steel industry. One by one, the
sectors listed will see nationalization, pressed by urgent need as the system
continues to break. The seminal event was the bust of subprime mortgages that
led to gigantic bank losses. The bank & bond contagion, unlike what
Bernanke has said, is total, absolute, and deep. In fact, USFed Chairman
Bernanke has not made a single correct economic or banking forecast, par for
the course on a university Economics Dept chairman. Back to the gold issue. The
nationalization movement, especially its first step with a Fannie Mae and
continued big bank bailout, will heighten the risk for the USDollar. Get the
printing press ready. Everything is going the wrong way for these conmen
control freaks!
My
conjecture is that recent Wall Street stress tests revealed that the most important
piece was Fannie Mae. The FDIC list of troubled banks, which incidentally
did not list Indymac, might have included some investigation to reveal
that 20 to 40 banks might be ready to dump a bunch of Fannie Mae bonds in
order to improve their cash balance sheets. Perhaps China
has been dumping some of their reported $400 billion in Fannie & Freddie
bonds, and JPMorgan is under strain to buy them all up quietly, before news
breaks beyond their hardened corrupted walls. Regardless, the big risk
with bailouts is the USDollar breakdown. No way in Hades can the
USGovt sell a new mountain
of USTreasurys to
finance such bailouts. No way in Shangrila can the USGovt appeal to
altruistic multi-billionaires in the Arab world to foot the bill. The answer
is the printing press finally, which to date has not been used too much. Oil
it up! This has been boasted to be the great American advantage. Hardly!
Gone is the
positive sentiment that the USFed would indeed follow though on inflation
vigilance. Gone in fact are all the USFed and US
banking system options. Options are gone. The euro stands as the primary
beneficiary of US$ extreme duress. The Euro Central Bank has wrested
leadership from the inept destructive bubble engineers in the Untied States.
The euro managed to give back roughly half of its gain from the previous
breakout above 149 to 159. Next it should make a move to 164, my target. This
is analyzed more fully in the July Hat Trick Letter. Gold will follow the
euro lead, as the gold price, the silver price, and the euro exchange rate
might all march to new record highs together.
HAS ANYONE
NOTICED THAT THE DOW IS UP, BANK STOCKS ARE UP BIG TODAY (THURSDAY), OIL IS
DOWN, THE 10-YEAR TREASURY IS BEING SOLD OFF SOME, BUT GOLD IS UP $13 WHILE
SILVER IS UP 20 CENTS !!! Gold & silver are up despite the flagship Dow
rebound, despite the bank sector rebound, which is 90% short covering and
vaporous.
Gold has
distinctly different markets in the different continents. Gold has
broken out into record territory in Japanese yen terms. This is a
very significant event. The Asian continent is where the big savings are
accumulated, outside the oil trade from the Middle East.
Among the North Americans, Europeans, and Asians, the Japanese gold price is
first to register an all-time high this summer. As Japan
exits its seemingly endless period of price deflation that began back in
1990, times have changed for its citizens. Prices are rising, and investors
have turned clearly to hedge that inflation. The same Cup & Handle
reversal pattern is clear, evident with the euro currency. It indicates a
price target of 11.50 to pursue. The yen gold price is negotiating the right
side handle, where hesitation, doubt, change of hands, and debate occur. Its
momentum will move gold higher in Asia.
Never under-estimate the power of quiet hidden Chinese gold buying.
INSTITUTIONAL CRIME & DISHONESTY
My claim has
been for four years that the US
financial system in its entirety represents institutionalized dishonesty, the
latest example of a US-style Fascist Business Model, made easier by control
and ownership of the world reserve currency, unbacked by gold. Anyone who
denies it cannot be observing the developments too numerous to count. Listen
to Bud Farrell (click here
or here)
at the Financial Sense Newshour, interviewed by Jim Puplava. Farrell
shares his insider experience on vast pervasive naked shorting of stocks,
which he claims is just the tip of the iceberg. The broadcast is a
follow-up of a Bloomberg research piece several months ago, and is entitled “The
Crime of the Century.” Unsound money invites pervasive corruption
from those close to the printing press, a principle that traces back to
Ludwig Von Mises from his fiat money teachings. My maintained list of
crimes of the century is long, starting with the Greenspan monetary drug
dealer actions to create the failed bank condition (while taking a second
Swiss paycheck), the Clinton-Rubin raid of the US Treasury gold supply (near
zero cost leasing), the ongoing suppression of key prices (gold & silver
in the futures market), the price capping of long-term USTBond yields (in
futures market and credit derivatives managed by JPMorgan), the continued
Enron accounting in the hidden banking system (see off balance sheet charade
in defiance of BIS & G7), then the export of fraudulent US-based mortgage
bonds worldwide (Wall Street handiwork). Let’s not forget the purchase
of FDA approval of certain lethal drugs, such as is rumored for Nutra-Sweet.
Then there is the entire story of gold heist, bond obliteration, insurance
fraud, interruption of Pentagon fraud investigation, rumored to have
motivated certain events in a big financial center NorthEast city about seven
years. Few seem to realize that a raft of 30-year USTreasury Bonds dated
before autumn 1971 were to come due in late 2001, all redeemable in gold.
The recent
action to prosecute naked short stock selling is more blatant corruption on
its face. The US
regulators are trying to halt short selling of 19 financial stocks, led by
Fannie Mae, Freddie Mac, Lehman, Goldman Sachs, Citigroup, JPMorgan, Merrill
Lynch, and Morgan Stanley. Near collapse of their stock prices is wrongly
blamed largely on short sellers. Regulators do not care about non-financial
stocks right now, curiously. They seem to deny that banks are insolvent,
calling the diverse troubled bank cases isolated. The villains are trying
to fend off panic in the bank stocks. They want to stop false rumors,
when Goldman Sachs is guilty of similar tactics. GSax is under investigation
for doing exactly that in London
before the Bear Stearns death. Regulators want to extend the tight
requirements on short selling between July 21 and July 29, through the month
of August. Removal of the short rule on upticks has contributed to this mess,
opening the gates of corruption. Fannie Mae might be the biggest lynchpin
involved as an object of stock shorts. It has $500 billion in short-term
rollover debt commitments, around $10 billion per day. The Federal
Reserve Bank of New York
has been given authority to aid Fannie & Freddie directly. Its $2.25
billion credit limit is inadequate. Fannie & Freddie own half the entire
US home loan mortgage market. What we are witnessing is Wall Street in
increasingly public demonstrations of desperation trying to rig the rules to
favor themselves, and reduce the risk of a total death episode, and
tremendous personal loss for the conmen bank executives. Their efforts have
earned some criticism.
After the
stress working through the entire system becomes even more acute, a big
factor will favor gold & silver. The ability for the Powers to control
USTreasury long-term yields, to control the USDollar, to bring the crude oil
price to heel, to manage the interest rate swaps and other overgrown credit
derivatives, that control will diminish. They will be forced, just like under
the triage tents, to decide what they must let go. The agents to control
prices, rig those prices, and distort those markets will be under huge strain
themselves. They might be burdened by the mundane task of survival. My
full expectation is that gold & silver will be released from control, by
expedience. It will be too costly and unprofitable to attempt control
anymore. JPMorgan will continue to manage its ‘Garbage Can’ free
from the nuisance of accounting disclosure. But they too will become too
distracted by the credit derivative mess that they contributed in building.
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Jim Willie CB
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