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USFed Chairman Bernanke and the Quantitative Easing programs are caught in
a negative feedback loop, the instruments at risk being the USDollar and the USTreasury
Bond. The former suffers from lost integrity and direct inflation effect. The
latter suffers from direct intervention and market ruin. The next QE round is
guaranteed by the failure of the previous program in an endless cycle to be
recognized later this year. Leaders are confused why the recovery does not
take root. It is because the entire system is insolvent, and the 0% rate
assures total capital destruction, not to mention the big US banks are
sacred, never to be liquidated, a primary condition for recovery. Liquidation
is tantamount to abdication of power of the Purse and control of the Printing
Pre$$, never to happen. The greatest hidden damage is psychological, where
the USDollar and its erstwhile trusted USTreasury Bond are no longer viewed as the safe haven. Capital
destruction is the main byproduct of monetary inflation, a concept totally
foreign to the inflation engineers at the USFed and
its satellite central banks. They are agents of magnificent systemic
devastation. In the wake of each QE round are discouraged creditors who turn
away in disgust. The damage and inflation feeds upon itself in stages of
intense wreckage. The motive, need, and desperation for QE3 is being formed here and now, to be announced by late
summer probably. Prepare for QE to infinity, endless hyper-inflation, a
process that cannot be stopped, as the urgent needs grows. Any attempt to
halt the process results in almost immediate total annihilation. So
continuation of QE rounds serves to manage the deterioration process and
guide the financial structures gradually and orderly into oblivion.
VICIOUS CYCLE FEEDS UPON ITSELF
Simply stated, each QE round guarantees
the next round, since damage is done, nothing is remedied, and the funding
needs intensify. The list of damage factors is actually growing. The main
factor is capital destruction from monetary inflation, as the
price of capital is declared zero, and it flees from the USEconomy.
Witness the industry long gone, hardly a critical mass remaining to support
the system with legitimate income. Government regulation and taxes assure the
flight continues in exodus. Almost half of the US Gross Domestic Product is
derived from financial paper shuffling, whose negative value has been clearly
displayed in the form of mortgage bond wreckage, profound bond fraud, home
foreclosure processing, absent home equity withdrawals, bankruptcy
processing, and piles of debt that burden households. US economists fail to
comprehend the entire concept of capital, this from the supposed leading
capitalist nation. The banking and political leaders struggle to produce jobs
without a clue of what capital is, instead seeking to put cash in consumer
hands. They should pursue business formation, with capital investment,
encourage risk taking, provide broad tax incentives, and lead the consumer
spending process with job creation and income production. But no. They prefer
QE, the accelerator that pushes the nation over the cliff.
The bond market has been disrupted and
corrupted, as the debt monetization has driven off foreign creditors,
leaving the USFed isolated as buyer. The 0% rate
slows the USEconomy tremendously by removing a
proper return on honest savings. Return on capital is greatly disrupted all
through the USEconomy. The heavily increased
monetary supply maintains the emphasis on asset bubbles, as desperation sets
in to find the next asset to produce a new bubble. The answer is USTreasury Bonds. A mildly violent reaction has come to
the long-term USTBonds, while the short-term USTBills stay near 0% but with the aid of intense
leverage power of Interest Rate Swaps. The long end reacts negatively to QE,
while the short end is under QE control from the big bulging bid. The entire
financial structure is crumbling under the surface. The USEconomy
will continue to falter at minus 3% to minus 5% growth in a powerful ongoing
recession, covered up by the fraudulent quarter to quarter calculations that
permit deep deceptions from adjustments. Businesses cannot justify any
expansion, given the household dependence upon home equity has vanished.
Businesses have been put on notice, a certain shock, that the national health
care plan will place greater burden on the business models. So the USGovt deficits will perpetuate in high volume, making
the supply overwhelming in USTreasury securities
and making the creditors retreat in a cringe of fear, shock, and disgust. The
more the USFed buys its own paper feces with USTBond labels, the more the securities lose their
security, the more the foreign creditors refuse to participate in the next
auction, the more the integrity of the US$ and USTBond
is shredded and lost. The United States has become a Weimar nation with
gradual global recognition. Instead of a recovery, it slides into the Third
World. Thus the need for the USFed to cover the
next USTreasury auction in full, or almost in full.
It is deeply committed to monetizing the entire USGovt
debt. Call it Weimar, Third World, Banana Republic, whatever!!
An encouragement has come from the QE
movement to the entire world to revolt against the USDollar,
to seek an alternative, to establish bilateral trade mechanisms, and to
bypass the current system that enables privilege, fraud, market meddling,
which permits an unwarranted standard of living to the US and its people. The
bilateral accords between Russia and China, between China and Brazil, between
Germany and Russia, and between India and Iran are all telltale signs of
revolt. They wish not to participate in the US$-based system. The consequence
is a new trend to diversify out of the USTreasurys
with existing reserves, and to avoid accumulation in the future within
banking systems for satisfaction of trade settlement in global commerce. The
foundation on a global level is crumbling for the USDollar.
As the bilateral links build, eventually enough fabric will be woven to
support a new global currency, or a new global system. Often mentioned in
certain circles is a sophisticated barter system, built upon high level
credits in exchange, with a vast trickle down flow of funds, within a
balanced system. Nations addicted to deficits will be left out in the cold.
The most deficit ridden is the United States,
dragged down by endless war costs. Their location has another name, the Third
World.
Furthermore, the inflation effect
has crossed from the monetary side to the price systems, hitting the
entire cost structure in a profound way. The moron bankers strive to cut off
the process from handing higher wages to the workers, so that they can afford
a higher cost of living. The leaders thus strive to bankrupt the Middle
Class, hardly a pursuit in commitment of economic recovery. The cost squeeze
is deeply felt by both businesses and households, businesses that cannot hold
their workers as profits erode badly, and households that cannot maintain
their spending patterns as incomes are devoted increasingly to food, fuel,
clothing, insurance, and everything else. Tax revenues from wages and
corporate profits and capital gains are descending into the gutter, not
available to cover the USGovt deficits. Witness the
death of the USEconomy in hyper-drive, pushed by
the USFed Quantitative Easing. The impact on the
worsening recession at the macro level, and the shrinking of both businesses
and households, translates to larger deficits. Notice that in early 2009 when
QE1 was first announced, and later when QE-Lite was
announced, the USGovt minions forecasted reduced
budget deficits for 2010 and 2011. The USGovt
posted its largest monthly deficit in history in February, a $223 billion
shortfall. Most decisions center on budget cuts, for education, welfare,
projects, and more, while war spending is largely intact, priorities
revealed. They have no clue how to build tax revenues. The Jackass forecast
was for greater deficits due to the ravages of capital destruction and cost
inflation, which both arrived with billboard attachments. The dependence
therefore upon the USFed for its Printing Pre$$
buyer of USTreasury Bonds will increase with each
QE round, assuring the next round.
The harsh savage negative reaction to
QE2 kicked into high gear the movement of funds out of the USTreasury complex and into commodities generally.
The shift to financial commodities in Gold & Silver has been even greater
than for crude oil, the traditional hedge. Despite not being the leading
non-financial commodity in price increase, the crude oil impact is enormous,
in food production, in transportation costs, and especially in industrial
feedstock costs. The result is an energy tax, compounded by a systemic cost
that acts like a gigantic tax. The USFed QE program
thus imposed a significant tax increase on the entire USEconomy.
The entire population is aware, except for the USFed,
the Wall Street master, and banking elite. Actually, they are aware, but they
cannot speak about the scourge they unleashed since they would invite criticism
and turn the blame onto themselves for destroying the United States
financially, economically, and systemically. The moral fiber is long gone
among leaders, as the US nation is being recognized as a fraud king playpen.
The end result is that in the cycle, movement from USTreasurys
to the USEconomy is not happening during this death
spiral, as it normally does. Instead, the next bubble is in the entire
commodity arena. Beware that such a trend is highly destructive, since it
erodes the profit margins and disposable income, thus causing deep recession
if not systemic collapse. The energy and material tax renders huge harm,
pushing the system into a deeper recession. It never ended.
Money is fleeing bonded paper, as all
bond markets are in a severe situation.
Even the stock market is supported heavily by the Working Group for Financial
Markets and Flash Trading, a form of self-dealing, whereby both prop up stock
share prices. Hence, the USFed is left more
isolated to purchase its own inbred cousin toxic paper securities. The USFed must continue with QE3, the only remaining details
are the securities that join the USTreasurys. My
bet is state and municipal bonds, along with a bigger swath of mortgage bonds
that would otherwise be put back to the Big US Banks, the dead pillars taking
up space casting long shadows. Numerous are the bond candidates for official
rescue, since all of them are in deep trouble. Buyers are simply vanishing.
The bond markets is in ruins, propped by QE.
LAST ASSET BUBBLE
The tragedy is that the USTreasury Bond is the location of the biggest and most
important asset bubble in the last 100 years. It is propped by the QE debt
purchase, enforced by the USFed, made urgently
necessary by the USGovt deficits, and blessed by
the USDept Treasury. The USTBond
bubble is the last bubble with any semblance of positive benefit. The next
bubble in commodities will be negative, harsh, and highly destruction, as
they will lift costs without a corresponding rise in wages. That event has
already been triggered. The key characteristic of asset bubbles is that
in the late stages, they require an accelerated source of funds just to
maintain their inflated condition. The QE programs will be endless because
the USTBond bubble demands it, even infinite funds.
Thus the mantra in criticism of QE TO INFINITY. With the heightened source
and blossoming channels to fund it, the integrity of the USTreasury
Bond complex will be ruined even as the reputation and prestige of the USDollar will be shattered. This is an end chapter,
marked by central bank frachise model failure.
USDOLLAR FACES THE ABYSS
The US$ DX index is a bad joke, but its
performance is highly revealing. As preface, the DX major component is the
Euro, even though the biggest trade partner of the United States is China,
with Mexico and China close behind. The argument is old and tired. Rare is
the 30-year chart offered by the Jackass, since its reliance as a tool is
often evidence of shallow analysis and little insight to offer for the
current year and its main events. But the historical USDollar
chart shows the great danger, since the world banking system rests on its
unit of exchange. The DX index lows from 1991, 1992, 1995, and 2005 have all
been breached, a major warning signal. Jesse at Cafe Americain
points out the pennant flag pattern formed in the last three years. It must
resolve up or down. My contention is that the pennant has already been
broken on the lower barrier, a bear signal. The next QE3 announcement
should send the DX index heading fast toward the 2008 critical low with a
71-72 handle. It
is written; it will be
done.
Many technical analysts are pre-occupied
with monitoring the critical support levels. Those levels are 72, 75, and
76.5, seen in the weekly chart. Instead, focus on the lower barrier of the
crucial pennant. The pennant trendline has been
broken on the downside, an important development. Traders in the currencies,
a multi-$trillion market, will take the minor technical breakdown and push
the already weak USDollar lower. Many argue the
Euro is in deep trouble, with a union in the midst of dismantlement. That
might be true, but in the Reverse Beauty Pageant, the USDollar
is by far the ugliest of the coined damsels. Its deficits are on par with the
PIGS of Southern Europe in percentage terms. Besides, the US is the site of
QE, the greatest monetary inflation scourge in modern history. Notice
that the bounce in recovery off the October and November low of 76.5 could
not manage a rise about the 20-week or the 50-week moving average. Those MA
series serve as current overhead resistance. The DX chart is caught in
powerful downward momentum. My forecast is for a breach of 76 in the next few
weeks, and a battle of paramount importance at 74, the next critical support.
The intraday US$ DX chart shows more
trouble in the very short term. The recovery off the 76 floor could not be
maintained. In fact, the sudden swoon displayed its weakness if not
artificial props. Be sure that the USDept Treasury
with its fascist business model trusty tagteam of
JPMorgan and Goldman Sachs are trying to do the herculean feat of preventing
the USDollar from a powerful decline. The ugly
truth is that JPM & GS are probably trying to manage the decline in the USDollar down to the 50-60 range in the US$ DX index, all
as part of the USGovt agenda. The plan is to
weaken the USDollar sufficiently enough to make the
USEconomy competitive again with respect to export
trade. The backfire in their faces is the price inflation curse and anathema.
The price structures will rise first from the QE exercise in Weimar
desperation, and will rise second from the US$ decline most assuredly worse
than its major currency competitors. The report card will be seen in a much
worse recession in the USEconomy, grander USGovt fiscal deficits, even larger USTBond
issuance, and more grotesque QE debt monetization more characterisitic
of a Third World Banana Republic.
SWIRL DOWN TOILET IN DETERIORATION
Within the Jackass archives, an item was
found from work done in 2005. What began as a graphic display of the grand
liquidity trap emanating from the failed housing & mortgage bubble has
turned out to be highly relevant in the aggressive metastasizing process from
monetary inflation cancer combined with basic economic deterioration from
capital destruction. Many are the ills of the USEconomy
and its fractured financial foundation. Take the time to note all the
different powerful factors at work that slow the entire system down. Forces
are shown from external shocks and internal shocks. The money supply
velocity is falling, ordered slower by the short-term interest rate stuck at
0%, the Zero Interest Rate Policy described as an important chamber label of
failure. Recall the empty calls for an Exit Strategy throughout 2009 and
into early 2010, as vacant as the Green Shoots and Jobless Recovery basis of
propaganda that unmasks the fraudulent bank leadership. The Fed Funds Rate
stuck at 0% cannot rise by USFed dictate, because
the housing market would implode more quickly, because the USEconomy would sink more quickly, because the US
stock market would dive like a dead mallard, because the USGovt borrowing costs would bring more deficit from debt service than other major items. The USFed has been backed in a corner for two years, no
longer relying upon a temporary 0% rate to stimulate. It is stuck with 0% as
a badge of dishonor, as a two ton cement block around its neck, as a Weimar
membership card. The complex chart should remind the reader of a toilet,
sewer drain, or even a rectum.
Some advice. As the movement swirls, as
the next QE program details are revealed, as the central bank model is
shattered in discredit, as the global monetary system crumbles before your
eyes, as sovereign debt worldwide loses its exalted safe haven security, as
your personal budget finances erode beyond your worst nightmare, invest what
is left of your life savings in Gold and especially Silver. In time, they
will be the primary portions of your portfolio with surviving value. Each
will rise, but Silver will do a moon shot!!
Jim Willie CB
Home
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Willie CB is the editor of the “HAT TRICK LETTER”
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