LIQUIDATION & USTBOND SUPPORT - The two main factors pushing up the US Dollar have been liquidation of
speculative trades funded by it, and redemption of credit derivatives paid in
it. These are not signs of any inherent investment in the US Economy itself,
but rather its liquidation. Evidence abounds of severe deterioration within
the United States,
a collapse of confidence, a fall in business investment, ruin in retail
demand, an avalanche of job loss, and a spread of corporate breakdown beyond
the financial sector. Demands for nationalization have begun outside the
financial sector in a wave certain to grow in strength and breadth.
The US
Economy faces a risk of not so much recession, as DISINTEGRATION. The
distribution channels within the United States are at risk from
lack of credit and trust. The overseas shipping channels to the United States
are at risk from refused letters of credit. These constitute arterial clots
never seen before. Look for export trade also to be harmed soon, as the US
Dollar exchange rate is silly high, and foreign customers are damaged from
export of US
bond toxin.
LAST DEFENSE AGAINST USTBOND DEFAULT
The
printing press is that last defense. Default can be
averted, but only with extraordinary actions with clear impact on the US
Dollar itself, undermining USTreasury integrity at
the same time. The huge funding needs in excess of $2.6 trillion cannot be
even remotely met by conventional USTreasury Bond
issuance. Auction failures from ridiculous under-bid conditions are next to
come. Higher bond yield offered is an immediate result. The last resort to
printing press usage will have an immediate and negative effect on the US
Dollar exchange rate. Theoretically the printing press can meet the demand,
but in doing so, the risk is transferred to the US Dollar from the USTBond. The two are inseparable. In fact, the USGovt-backed bond in the Treasury (which used to hold
gold, now pure toxic debt) is the obverse of the US Dollar
The
backside risk is for the USTBond yield to rise from
US Dollar pressure, as foreigners sell. The US Fed and Dept Treasury have
fiercely resisted unbridled usage of the printing press, for fear of
inflation consequences. Evidence abounds, revealed in the November Hat Trick
Letter report, to reveal specifics on draining the mainstream US Economy for
the benefit of corrupt Wall Street bond redemption and general bailouts. Rob
the US
populace realm in order to subsidize aristocratic fraud and redemption. The
unlimited risk from AIG, seen in credit derivatives, and from Fannie Mae,
more hidden from interest rate swap risk, is next to be manifested in double
barrel form. Already, AIG is back to the trough for the third time. Keeping a
lid on credit derivative explosions has been a primary motive for bailout
action in recent months. The Fannie Mae demand will be more like a gigantic
intravenous supply, more hidden from view.
The
pennant pause pattern in the long-term USTBond
yield can be seen in the chart of the 10-yield for the Treasury Note. My
expectation is for the yield to move out of the pattern to the upside.
Foreigners are witnessing an artificially high US Dollar at the same time as
an artificially high USTreasury principal (from low
bond yield), a bad combination. Auctions will thus be strained in coming
weeks and months. Details on the USTreasury Bond
risk and connected factors are in the Macro Economy report for the November
Hat Trick Letter.
STEEP TREASURY YIELD CURVE
The gold
price typically loves a steep yield curve. Banks do also, but they are
struggling in a horrible manner with insolvency. A great consolidation phase
is underway, described in past articles, and increasing in strength, where
the Federal Reserve banks benefit. Evidence is ugly and stark, as the great
majority of the initial Wall Street bailout tranche was not dispensed as bond
purchase but rather of bank stock purchase of Federal Reserve primary
dealers! Banks are not lending the USGovt funds
from the bailouts, a violation of agreements, but then again, a Coup d'Etat took place recently as Wall Street installed a Czar named Henry who acts unilaterally.
The
short-term bond yield in the USTreasury complex is
low, while the long-term bond yield is high. Profit margins will be aided in
a pyrrhic victory for the banks, who are dead but
still permitted to operate. They borrow short and lend long, so have a decent
profit margin restored. Price inflation will be the phenomenon discussed in
coming months, as officials attempt to turn on the switch and reflate the US financial and economic
systems. The task is fraught with risk and challenge. The level of
deterioration in the US Economy is great, more than what the bankster megalomaniacs figure.
CLASH DIRECTLY AHEAD, GOLD IMPLICATIONS
The
major nations and camps are heading for a power clash of historic
proportions. Certain nations have long memories for having been victimized by
past imperial forces. Look for them to set a series of traps, with possible
military confrontation. Analysis has begun of the extent of degradation and
impotence of the US
military machinery. Conflict resolution will not occur at the conference
table alone. Brawls on the global landscape are assured. The G-20 Meeting
will serve to be a sideshow, populated by clowns. To an absurd degree, the United States and England still maintain the grand
illusion of being in control. They are not, since both are deep debtor
nations and operating under failed banking systems. The major creditor
nations will not permit a simple restart of Western nations, under the same
rules. Big changes are coming. The gold and silver prices will soon enter a
powerful stage of rising price, as in go through the roof. Defaults are
likely at the COMEX, so watch the December contracts.
In the
next couple months, all value will be called into question on the paper side.
Alternatives to the US Dollar as global reserve currency are soon to be
discussed and even tested. Implications to global commerce are huge and
all-encompassing. Gold and silver will emerge as the primary store of value,
in undisputable manner. The new global masters, from the credit side and not
from the debtor side, will not permit any confiscation of gold or silver to
occur. Desperate attempts might be seen by the US/UK failed team, certain to
reveal their impotence. Gold & silver will emerge from these smoldering ashes of bank ruins (seen clearly as
unfolding) as survivors of stored value. The next round of economic decline
will occur outside the financial sector, and serve as exclamation points for
the need to find true value. VALUE IS ULTIMATELY FOUND IN GOLD &
SILVER.
THE BIG ELEPHANT CARCASS
As a
friend and contact has said to me, “The US financial system can be killed
with a single well-placed shot, much like a shotgun to an elephant.” The
US
is so vulnerable, its true condition is
indescribable. The USTreasury Bond represents an
obelisk bubble specifically originating within the bond bubble that has
broken in a general sense. It rises like a narrow
tower above all the other deeply damaged bonds in a perversely structured
credit market. All non-government bonds have suffered, while USTBonds have benefited. The high USTBond
principal value and high US Dollar exchange rate will encourage foreign bond
holders to begin to “spend” their artificially high valued USTreasury Bond securities before events occur to greatly
undermine their value. See for instance the Chinese announcement to spend
$568 billion in a stimulus package. Although great news for the commodity and
reflation trade, this cannot be seen as good news
for the USTreasurys. They will lose a strong
Chinese bid, or see outright selling.
The
Chinese plan calls for strong support of public housing, infrastructure,
railways, and indirectly demand for commodities. Contrast theirs to US plans
to support failed financial firms and deeply rooted corruption of marquee
named financial firms, at the exclusion of mainstream businesses. Other
nations will soon be forced to defend their own domestic currencies against
an unreasonable decline in exchange rate, the result of the Black Hole in USTBonds. Currencies from nations ranging from Europe to Brazil to Russia will react by selling
their USTBond reserves, and to use them for
purposes consistent with why those reserves were accumulated in the first
place.
GLOBAL USDOLLAR SWAP GAMBIT
A
desperate attempt was made in recent weeks by the US Federal Reserve. They
installed a US Dollar Swap Facility, which essentially averts failure in the
form of non-government bond defaults within the credit market and credit
derivative markets, flooding the global financial system with USTBonds. As the US
attempts to jumpstart a Reflation Initiative, the rest
of the world will be pulled into the same policy, so the US power
hungry but failed wizards believe. Foreigners will grow increasingly confused
and defiant, offering central bank support but not showing up with any vigor for USTreasury auctions.
This is
a huge risk to avert USTreasury Bond default from
the back door. As the globe is reluctantly coerced to follow the US
lead in a reflation, the
gold and silver prices are sure to respond. The clarity of the depth and
scope of attempted reflation will be vividly clear
when General Motors faces further bailouts. A GM failure would have more bond
damage done than the Lehman Brothers failure, but with a million jobs
vaporized from a mammoth vertical integration and broad fallout zone.
Implications to the US Dollar will be seen. In a sick sense, the extension of
bailout and rescue will grow out of control, and usher in entrance to the Third World.
The
transition of the new Obama Administration seems marked clearly by
continuation of Wall Street and Washington
DC insiders, not change. Expect
all four major syndicates to remain in place. An analysis, a good start and
by no means complete, since names are not yet final, of the Obama Cabinet is
included in the November Hat Trick Letter report. Any Dept Treasury Secretary
picked by Robert Rubin will continue the Wall Street stranglehold of US
Dollar and banking policy, not change. A vast revolving door is clear,
payback for support during the long campaign for both donor support and media
coverage. Never confuse change with transition.
Jim Willie CB
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