CHINESE TAKE-OUT (OF USECONOMY)

By Jim Willie:

The Chinese really must think the American strategy and behavior to be braindead and self-destructive. The US helped them assemble a manufacturing industry, replaced US income with debt, and finally faces the Grim Reaper in a national episode of systemic failure. The US leadership is as stupid and mindless as the population is driven by compulsive consumption over the cliff, as the nation faces ruin. The Jackass warning has been for five years that the Chinese experiment would end in tragedy, and that when a preponderance of USTreasury debt is owned by foreigners, especially a single foreign nation, the Untied States will lose its sovereignty. It is worse. It lost its vitality entirely. With its financial engineering backfire, the nation is broken from a sequence of repeated asset bubbles & busts. With its wartime economy, the nation seeks new enemies and prefers exports of weapons to productive goods. The nation is like a Sherman Tank sinking in a sea of quicksand with credit cards as banners flown, all overdrawn and canceled. The globe has come full circle from a century ago. Refer to the opium wars with Britain.

A spectacular sequence of events has taken place with respect to China and the United States in the past decade. The disastrous outcome was extremely visible long ago to the competent economists. This article cannot fully discuss and analyze the entire sequence, which in my view took the USEconomy from imbalanced, debilitated, and on the verge of ruin in ten years to chronic insolvency, accelerated breakdown, and systemic failure today. The official policy toward China by the USGovt on bilateral trade highlights the incredibly stupid and irresponsible nature of American leadership, especially in economic and financial matters. Let this piece serve as an outline of ruinous self-destructive policy, resulting in a climax failure in the Untied States. At the doorstep to a much darker poorer place, with countless traits associated with the Third World, the US as a nation with its USGovt and Wall Street compromised leadership refuse to admit grotesque errors. They do what they usually do, create more money to toss at half-baked solutions, and create a new enemy to lay blame on foreigners. This time though, the Chinese object of criticism, rebuke, hostility, and retaliation is the largest USTreasury creditor. The counter-attack from Beijing after an amateurish display of ignorance and tantrums seems directed at purchases of Gold & Silver, along with developing a stranglehold on the commodity supply chain. The financial managers in China have found inventive ways to discharge vast amounts of USTreasury Bonds. Their challenge includes finding secure worthwhile investment locations for the over $20 billion in bilateral trade surplus they build each month with the US, a formidable challenge indeed.

MOST FAVORED NATION TICKET
The rationale for the Clinton Admin to grant a Most Favored Nation status to China in its closing months in 1999 was a mystery to me. To be sure, the gesture went a long way toward developing detente with the slumbering giant. But it awakened the Middle Kingdom after two centuries of quiet, marred by a half century of harsh communism. Without question, some big promises were made in bilateral agreements. My suspicion is that the USGovt sought a lock on a new large scale creditor to purchase USTreasury debt securities, regardless of the consequences. Perhaps the USGovt sought a bagholder both either USTBonds or USAgency Mortgage Bonds, or both. With Japan and South Korea as neighbors, China would surely not resort to purchasing US weaponry. Given the coincident timing with the handover of Hong Kong from the British at the end of its 99-year lease, one must suspect that China might have promised not to transform HK into an economic prison camp shrouded in communist rules that would render it a wasteland, if the US and UK would only promise to assist the Asian giant with technology transfer, industrial support, and massive business investment. China probably promised some big bait of cheap imports to the USEconomy, the grand US achilles heel. The US was well along its pattern of consuming itself to death. Witness the retail emphasis within its economy, its crippling reliance upon debt, its junk food preferences, and its obesity. The China might have laid a great trap, and the US took it.

The Most Favored Nation status was the ticket that opened the door, a New Open Door policy, for investment, lower cost in production, and the general awakening of the sleeping giant. What followed was a natural course of events to unseat the Untied States, converting it into a hopeless debtor with neither the prospect nor the means to repay its debt. Enter the new age of China, all perhaps the plan, the ever patient giant. The parallel to the destruction was a course taken by former USFed Chairman Greenspan. He guided the nation through the avenue to financial engineering and consequent implosion brilliantly, offering ideological justification, legislative obfuscation, and near the end, a nearly total abdication. He was a tremendous mesmerizing high priest. Greenspan's second paycheck from his Swiss masters is consistent with working an agenda toward the demise of the American Empire.

INVESTMENT PARTNER
The first active stage between the United States and China was as investment partners. Rough figures of Western corporation (US, Canada, Europe) investment were $23 billion for the years 2001, 2002, and 2003. It was probably more. The Chinese industrial base expanded to the point that 60% of all Chinese trade surplus originated from Western corporations new to the scene. Yet the US leaders complained about the big surplus gathered, being part of its process. Worse, the Chinese factories often were equipped with the next generation Japanese machinery, like in machine tools, automation, and fabrication. A few years later, the German machinery entered the factory floors to some extent. US corporations saw an opportunity to tap the cheaper Chinese labor, and did so. The consensus opinion was that China could not be ignored for another century, so include them, partner with them, bring them into the fold. China quickly became the centerpiece to the globalization movement. One must wonder if the Western economist corps was so clueless as to be ignorant of the downside effects. China would draw countless jobs from the US and Europe. China would accumulate reserves rapidly. China would own foreign debt securities well beyond a critical mass. When the Hat Trick Letter started in 2004, my warning was constant and consistent, that China would eventually became a rival then a trade war opponent. The differential in labor costs would lead to a gigantic arbitrage that ended up at a breaking point, with extreme conflict at the end chapter. We are there.

THE LOW COST SOLUTION
The people of the United States no longer hear about the famed Low Cost Solution bandied about in 2002 and 2003 endlessly. It was supposedly a good thing, to reduce the cost of home electronics and housewares. For a idiot consumer society, that is a good thing supposedly. For a wise nation, it is a prescription for disaster. That was how the Jackass saw it. The solution of a lower production cost had a flip side, with staggering consequences that would put the US as a nation on a collision course with the Third World abyss. Simply stated, China's gain would be America's loss. The new jobs created in China to enable the lower cost in producing exports to the US consumer, hellbent on consuming his entire house in home equity, hellbent on consuming his entire future in order to live for today. The result would be assuredly lost jobs in America. It was obvious to all except the clueless cast of hack US economists. They proclaimed that the lower costs of production would enable cheaper imports into the USEconomy, a new wave of spawned growth with ripple effects in benefit, wider distribution from this vast Asian pool, more retail jobs, and a new American growth spurt. What utter nonsense! But they continue to ply their trade.

Quickly the jobs vanished from the USEconomic scene. Home appliances took much of the news headlines. The drain of jobs spread to Japan, as its robust economy began to feel the impact. In time the majority of consumer items like cell phones and home stereos were built in China for export to Japan. The labor arbitrage in globalization spares no advanced economy, which must operate under a higher cost structure. Follow washing machines, dryers, dishwashers, stoves, and more, came housewares and hardware items. The crowning blow was the announcement that Wal-Mart had 160 Chinese manufacturing sites in place. Sam Walton would not approve, as his motto was Made In America. The die was cast. Then came the problems of quality and reliability. Food imports from China had gradually earned a tarnished reputation of recycling chicken from reject sources and even roadkill for fresh caramel color and quick export to the US grocery shelves. The home building industry saw problems with drywall quality, even carpet chemicals. The SARS epidemic eclipsed the news headlines though, usurping attention. The same type of software reliability problems seen in the 1990 decade from India were experienced from Chinese exports. The greatest impact in the early stages of the Chinese industrial experiment were

• the loss of US jobs in favor of growth in China
• the loss of income from value added tangible industry in the USEconomy
• the rise of home equity debt from US households
• the US dependence upon asset bubbles for economic growth
• the growth of income in China
• the growth of the bilateral trade deficit with China
• the growth of the mammoth FOREX reserves in Chinese Sovereign Wealth Funds
• the increasing share of Chinese ownership of USTreasury Bonds
• the increasing share of Chinese ownership of USAgency Mortgage Bonds
• reduced quality and reliability of imported products to the USEconomy
• strain for the macro economic impact to the USDollar and Chinese Yuan
• strain for the macro economic impact to the USGovt debt and USTreasury Bond
• resentment in the US for jobs stolen by China
• blocked large firm acquisitions (see Unocal, BHP Billiton, 3Com)
• new areas of friction (e.g. bank rules, security rules like Google)
• a fast rise in tariffs and protectionism

ALARMING FOREX RESERVES
For US-based economists not to foresee a simple direct consequence of fast rising, alarming levels of FX reserves being accumulated by China, the American economists showed their true stripes as short-sighted and incompetent. The Jackass siren call was that eventually the Chinese holdings of USTreasury Bond debt would grow so great that US sovereignty would be challenged, compromised, then lost. The concept never entered the inept thought chambers of US economists. The challenge became so great within China for managing such huge sums of money, each and every month, that they created several Sovereign Wealth Funds. The Arab nations developed the concept, as did South Korea and Singapore, but the Chinese saw such funds flourish. When they collectively tipped the $1 trillion mark a few years ago, the news captured global attention. Nowadays, the Chinese total reserves from diverse accounts totals $2.65 trillion, a center of great power. The USGovt will likely pack on an equal amount of debt every two years.

In recent months, the US-China bilateral trade deficit has remained over $20 billion per month in stubborn fashion. The labor arbitrage is a dynamic that will not go away. Chinese labor, as the Jackass wrote in 2005, could rise by 50% and still be far below the US wage scale. In order to cement their grip on trade, and assure a reliable supply line, which keeps firm their surplus revenue stream and economic vitality, the Chinese embarked on a fortification strategy. They bought the Long Beach California port facility. They bought much of the Vancouver port facilities. They bought much of the Mexican port facilities. In the last year, they expanded to building the primary Brazilian port facility. Call it a stranglehold of deep water ports. The major challenge for China with gargantuan reserves and fast growing new entries into reserves is the management of them. They have major challenges in investing all that money. Well actually, it is not money, but rather credits acknowledged to contain value in recognized purchase power. The Chinese have been engaged in extremely brisk investment plans to secure energy supply, metal & mineral supply, and on the other side to secure markets to sell their finished goods. Instead of weapon sales, they typically promise to build community centers, schools, hospitals, marketplaces, railroads, and port facilities. Of course in the process, they ignore local dictatorships. They have made great inroads in West Africa, a region the US ignores except for Nigeria, where the common practice is to use muscle and bribery it seems. See the ex-VP Cheney case. China has made great inroads in the Persian Gulf and in Turkey, opening up Middle East markets and African markets.

SCAPEGOAT FOR US WRECKAGE
As the disaster unfolds from a mindless self-destructive pathway toward the climax in consumerism coupled with labor market abandonment, the USGovt has followed its usual pattern of blaming the trade partner. China has been labeled a currency manipulator, a thief of jobs, everything but the old heartless yellow scourge. Save that label for last. The USGovt, with its recent Wall Street masters, has been deeply involved in wrecking the integrity of most every financial market it touches. The USTreasury Bond market has a scad of naked shorts, failures to deliver, and leverage from Interest Rate Swap contracts that help to maintain the high value and low rates. The USGovt keeps the Consumer Price Index under wraps, preventing an unwanted rise from appearing. In the 2000-2007 period, the rising home price component was carefully removed from the CPI. It featured the home equivalent rent component instead, a tame moribund figure. After 2007, the stat rats decided to include the home price component again, since it is falling. Now the CPI features a home price item that consists of 25% of the index incredibly. Then the USDept Treasury assures that enough Treasury Investment Protected Securities are bought by the USFed, so that the early warning system on price inflation is cooled by a bathtub of cold water at all times. Then the USGovt uses suppression of the gold price in order to keep the USDollar elevated. The currency stabilization funds are commonly recognized mainstays of USGovt financial management. In fact such stabilization funds have about 20 to 30 hidden agencies busily defending the USDollar value, our freedom, and our way of life. During all this market manipulation, the USGovt has angered its creditors to the extreme.

So the USGovt reveals its many currency manipulator sides. A scribe would be negligent not to mention the Shadow Banking System that is the province of the US banking industry, fully supported by the USFed and the USDept Treasury. The hidden banking network has the unique feature of profiting from other nations as their financial structure heave from the great stress, and decline into a wrecking field. Keep in mind they include vast import of fraudulent bonds from the US issuers. The shadowy system used to boast $1400 trillion in credit derivatives and other nuclear sewage, now perhaps only $1000 trillion in a celebrated deleverage initiative. These are large numbers! These instruments go a long way to manipulate the value of USTBonds, the USDollar, and the entire usury costs of the US universe of corrupted value.

The USGovt finally has complained about Chinese Yuan currency manipulation so much and for so long, not to mention with such shrill vacant thought, that the world has isolated the US on the global stage. Take the South Korean G-20 Meeting a month ago. The US was given lip service as appetizer hors d'oeuvres, and a cold shoulder at the dinner table. Nobody followed the US lead, nobody. It was the most shameful G-8 or G-20 Meeting in Untied States history. The finance ministers took their cues from the Chinese delegation. The crowning climax to duplicity has taken shape in the last year. Early in 2010, the professor occupying the USFed Chairman post repeatedly mentioned his plan for an Exit Plan from the 0% rate corner. The Jackass dismissed such nonsensical propaganda, along with equally lunatic delusional notions like Green Shoots of USEconomic recovery. If Bernanke were graded like a graduate school student for accountability on forecasts, analysis, and white papers, he would fail quickly and exit the program (a very different exit strategy). As the distress to the USEconomy and US financial system became acute in 2010, the USGovt blamed China for more currency manipulation. It became a tired old song with little or no meaning, more like a blunt stick to beat the Chinese investment partner from 2002, to pummel the creditor. How quickly we forgot our trade partner, our source of Low Cost Solutions!!

The climax came with admission that the USFed would embark on Quantitative Easing #2, a correct Jackass forecast cited all through the first six months of 2010. The USFed would print money, buy USTBond debt, flood the bond market with liquidity, and directly manipulate the USDollar currency in the process. The debt monetization in 2009 and 2010 was much bigger than the exposed QE1. The USDollar has been in downtrend ever since. Gold has been in powerful uptrend. The duplicity comes from the USGovt continuation of charges that the Chinese Govt manipulates its Yuan currency. The DC spin has no other message. To be sure, China keeps a loosely managed peg to the USDollar, never to permit too fast a rise. But the USGovt by comparison is the undisputed world champion of currency manipulation, debt production, market undermine, statistical distortion, and bank ruin. See the Flash Trading in the stock market.

CURRENCY WAR & TRADE WAR
The Competing Currency War has ramped up, heated up, and agitated every single major and secondary nation in the global economy. The primary detonation trigger for the currency war was QE1, the printing of $1.4 trillion of phony money by the venerable USDept Treasury, blessed and managed by the august USFed, and subsequent purchase of two tranches of USTBonds and one tranch of USAgency Mortgage Bonds. The world watched in horror, as the USGovt gradually lost its buyer base in Treasury Bond auctions. The totally lost USFed under the myopic stewardship of Professor Bernanke, the great student of Great Depression revisionist history, pounded the podiums about an Exit Strategy once again. Except this time after the nutty home buyer tax credit expired, the USEconomy slid further into recession. The lies told and reports published on price inflation, which rages higher at 8% according to Shadow Govt Statistics competent analysis, permit a 5% to 6% lie to be built into the GDP calculations. If price inflation is not really 2% to 3% as reported, then the GDP growth is not 3% as reported, but actually minus 2% to minus 3% instead. If simple annual GDP is compared to annual GDP from a year ago, then the GDP is running at a 7% recession. This revelation is astounding!!

So the USGovt refuses to effectively stimulate the USEconomy, since beholden to Wall Street for $trillion welfare programs. The USGovt conducts revolving door sessions on home loan modification, offering much sweeter incentives to the foreclosure mills run by the FDIC for the big banks. And the USFed admitted in August and September that the QE2 project would be unleashed. The engine for the global Competing Currency War is clearly the United States, where the asset bubbles were engrained in policy, where the multi-$trillion bond fraud originated for global export, where the criminal prosecution is nowhere, where the multi-$trillion monetary press is hard at work. The response from global trade partners is shock and horror, followed by hasty actions. The central banks around the world are busily responding to rising currencies. The December Hat Trick Letter gold report shows evidence in the TIC Report on USTBond holdings by major nations. Some nations are reducing US$ exposure by USTBond sales. Other nations are quickly buying up USTBonds to prevent a fast rise in their native currencies. Other nations are part of the hidden US-UK network that conceals their vast USTBond purchases, all of which are denied by Bernanke before the USCongress. Why would the United Kingdom be so busy if not part of the illicit game of currency ruin in a desperate survival initiative? The United Kingdom, despite being locked in an intractable downward spiral with insolvent banks, wrecked home equity, and horrendous national deficits, has somehow seen fit to increase its USTBond holdings by more than triple, from $126.8 billion in September 2009 to $459.1 billion. And China is a currency manipulator!!

The Competing Currency War has a long way to go. Healthier nations with a brisk export trade must be careful not to suffocate under a strengthening currency, as the USDollar steers itself down into the devaluation morass. The brain trust of the Wall Street and London pedigree know full well that the game is over, the fiat USDollar is trash, and that the Paradigm Shift features a power handoff to China and the East from the insolvent West, whose flagship in the US & UK is preoccupied by war. The Competing Currency War is utterly fascinating, since it can be pre-written according to a tight script. Japan is buying USTBonds to prevent a fast rise in the Yen currency, which has already done harm to their export trade. The emerging nations are being flooded with speculative funds chasing higher bond yields, proceed funds from commodity sales, and much more. They will be harmed by rising native currencies. See Brazil for example, which has instituted new rules and taxes on incoming speculative money flow. They have a food price inflation problem, which is not from speculation, but rather from in my non-expert opinion a result of three decades of cutting and burning the Amazon Rain Forest. Their rain patterns have changed radically.

The real big battlegrounds are between the US & China and among nations within the European Union. The Europeans cannot continue with the fractured common Euro currency more longer, especially with defaulting sovereign bonds underneath them. Its Euro Bonds are so different, that arbitrage pulls apart the Euro at a time when the sovereign debt structure is falling like a series of dominos. The big enchalada is clearly Spain, which is near default. It will change the EU landscape radically. Today some baseless propaganda news was promulgated that $40 billion would be needed to fix Spain and its banks. If Spain is three times larger than Greece, and the Athens banks needed $110 billion, one might use lower math to conclude that perhaps over $300 billion would be needed to come to Spain's rescue. A rising Euro renders great harm. So again, according to script, the EU leaders and the EuroCB chieftains will do what they can to bring down the Euro currency, an exceptionally easy task. Such an easy task to order more Euros and bail out more European banks. The decision is simple, and in the process of pushing down the Euro exchange rate, the Gold & Silver prices rise substantially. The Competing Currency War swirls. The only winner is Gold and its swifter brother Silver.

GRAND CREDITOR & LIQUIDATOR
China has become the world's great creditor. So far they have not abused their role and position. They tend to cut trade deals more than weapons deals like the US has done with the entire Persian Gulf for five decades. The most clever action so far by China in the last two years was to establish a Dollar Swap Window for Greek Govt debt conversion. They obviously are using USTBonds in a dumping exercise. They are building a broader Dollar Swap Window for conversion of Portuguese and soon Spanish Govt debt. They have won a freeze on trade war decisions at the governmental level across the entire European continent in a brilliant stroke. They won access to world class German industrial products. They have an avenue to dump USTBonds and in a sense enter the EU as a member nation, its creditor partner. The maneuver essentially isolates the Untied States further. Just this week, the clownish notion of US insulation from PIIGS sovereign debt was smashed. The US banks are vulnerable, despite past denials.

China has discovered that it can dump far more USTBonds by purchasing discounted EU member nation debt securities than it ever could in buying up West African deposits or Persian Gulf energy sources or South American deals. American observers shook quake in their boots, since China has learned how to enter the world of high finance. Sovereign debt is the closest thing to currencies in existence. The bonds are the obverse side of the currency. China has begun to expand its Yuan convertibility. Moves with Brazilian Real were followed by a less significant move with the Malaysian Ringgit. In late November moves with the Russian Ruble were cemented. In two years, the Chinese Yuan might be on nearly equal footing as the USDollar as a global reserve currency. The fact that it is rising will be one of its strongest features.

GOLD CENTER OF RETALIATION
The trade war has blossomed from import & export of goods & products to the financial sector. The resentment over currency manipulation has a backfire. China is heavily motivated to purchase Gold and to convert reserves to Gold. They are using USTreasury Bonds to buy Gold. They are fast exhausting the available supply of gold bullion, the real tangible physical version with inherent value. They are encouraging the Chinese population to buy gold in any form, relaxing the rules. At the same time, they are playing the Wall Street and London corrupt rigged game. They are using USTBonds to purchase layers of indexes futures contracts in gold. So as they buy up gold bullion, they pack underneath layers of long contracts at slighly lower prices. It is like a rugged strangling of the victim about the neck while covering the mouth & nose with a brutal cupped hand. The Chinese has engaged in the active war of words. They have called the USDollar a joke for a global reserve currency, unworthy since it is linked to gargantuan deficits. They carefully avoid accusations of bond fraud. The Chinese have called the USDollar the ultimate in currency manipulation, due to its open abuse as a monetization instrument. The mere fact that the USDollar is the object of a new carry trade, on then off, is another insult. Imagine using the USDollar at 0% cost as the source to fund speculative trade. It guarantees a powerful longstanding enduring decline.

GOLD & SILVER BREAKOUTS
The breakouts in the Gold & Silver prices will continue for the next two years and beyond. Every several weeks, a fresh record high will come. The unique aspect of the precious metals breakout is its foundation in a crumbling global monetary system. Demonstrated proof is that the Gold & Silver prices are making record highs in all major currencies. The gold chart is less impressive than the silver chart. The long held favorite by the Jackass is silver. Central banks own none, and industry demands plenty, as substitutes are few. Gold & Silver have found their place as global reserve assets and currencies within FOREX accounts during the global assault on sovereign debt. The claims that Gold & Silver are in a bubble are as stupid as they are humorous. Money is never in a bubble. The big bubble is USTreasurys. The desperation of the captains of fiat fraud is showing like clown suits worn in plain public view.

Note the Silver price breakouts in all four major currencies, from upper left to lower right in the US$, the Euro, the Pound Sterling, and the Yen. The promised land for many precious metals investors has been to witness a bull run in all currencies. It has begun, and it will continue until the series of pre-ordained climax events occurs. It will be as tragic as exciting. The global monetary system is collapsing, led by sovereign debt ruin and amplified monetary expansion that brings no viable solutions anywhere. The major banks are collapsing in insolvency and futile defense of their broken fortresses. Government deficits are spiraling out of control, whose solution in fiscal austerity only makes the economies weaker. The metals exchanges are being systematically drained, even as revealed for the leveraged high risk in fractional methods. They buy and sell paper gold and paper silver without too much benefit of physical, permitting naked short sales by the biggest US and London banks. Their game is being called. The Swiss banks are under critical eye for foot dragging on gold & silver withdrawals from Allocated accounts.

The Chinese have done something remarkable, only to be done if they know the game is over and the victory over fiat paper money is complete. The Chinese have laid out their game plan, their modus operandi, their tactics if not strategy, through an anonymous London broker. Hats off to the King World News for sharing the invaluable information that should encourage even the most timid and reticent investor. The Anglo bankers are stuck!! They are running out of physical metal to sell in a fractional scheme. They cannot afford to pounce too hard on the price, with either naked shorts or higher margin requirements. Doing so only plays into the Chinese hands, which are grabbing all the bullion available. So the challenge is for the Anglo bankers to control the pace of the demise of the Gold & Silver metal market. This is game over. In these times of monetary hyper-inflation, called euphemistically Quantitative Easing among gentlemen, the prospects for a double and triple in the Gold & Silver price is utterly obvious.

Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com . For personal questions about subscriptions, contact him at JimWillieCB@aol.com

Rome burns again

Whilst Emperor Nero, and no doubt many attractive women, played by the sea at his villa in Anzio, Rome burned. Seems like Emperors, sea side villas, girls and Rome burning are the staple of Italian politics, regardless of the era.

The Euro is a doomed currency - The Greeks want their currency back

Building What?

Whilst this blog is primarily meant to be about precious metals & economics, I feel it at times one needs to peer behind the curtain, as Dorothy did in the Wizard of OZ, to see if our view of reality is true or a mirage. As the WTC Building 7 truth movement is starting to go mainstream (as seen by the TV ad below) I thought I would share some info I posted on my other blog earlier this year.

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A brilliant essay on the destruction of World Trade Center 7 by Prof. David Griffin. Read it here ---> Building What?

Then ask yourself what would happen if the truth about what happened on 9/11 became more widely known - what affect would that have on the world's view of the USA, on the US$ and subsequently on the price of Silver & Gold in US$ ?

US TV Ad

Dr. Paul Craig Roberts

Keiser Report - Fraud as a Bussiness Model

End of Empire: Detroit Is Halting Garbage Pickup, Police Patrols In 20% Of City

Erie parallels to the fall of Rome – parts of the city ceded to gangs, reduced govt. services as finances dried up, shrinking population as residents fled the city centre for outlining suburbs, increased tax demands on those residents that remained......

From Businessinsider.com:

Detroit has been bankrupt for years. It simply refuses to admit it. Detroit's schools are bankrupt as well. A mere 25% of students graduate from high school.

Yet, in spite of hints and threats from mayors and budget commissions, and in spite of common sense talk of bankruptcy, Detroit has not pulled the bankruptcy trigger.

In a futile attempt to stave off the inevitable one last time, Mayor Bing's latest plan is to cutoff city services including road repairs, police patrols, street lights, and garbage collection in 20% of Detroit.

Bing to Cede 20% of Detroit to Gangs and Homeless

Read more

Max Keiser: Precious metals going higher? I’m a buyer!

Water, Meet Blood - JP Morgan Admits To, Reduces Massive Silver Short Position, Proves Millions Of Conspiracy Theorists Correct

From Zerohedge.com:

In the latest example that virtually every conspiracy theory is almost always inevitably proven to be fact, the Financial Times reports that JP Morgan, the firm targeted by thousands of "tin foil hat" wearing, conspiratorially-oriented "gold bugs", has cut back on its US silver futures. "JPMorgan has quietly reduced a large position in the US silver futures market which had been at the centre of a controversy about its impact on global prices for the precious metal." And in what can only be considered an unprecedented victory for all those who have over the past year agitated to putting JP Morgan out of business, most recently spearheded by the likes of Mike Krieger and Max Keiser, by forcing a massive short squeeze on its commodities trading desk, we learn that "the decision by JPMorgan was an attempt to deflect public criticism of the bank’s dealings in silver, a person familiar with the matter said........read on

Is Silver Really Worth $424/oz?

European Union Meltdown

By Bob Chapman (theinternationalforecaster.com)

Believe it or not the euro zone and European Union crisis is still in the formative stages. The bailout packages arranged for Greece and Ireland are not to bail out those two countries, but to bail out the European banks that lent to them and bought their bonds when it was imprudent to do so. They knew, because they control the governments that the public of the solvent governments would bail them out. Thus, the governments of Ireland and Greece with Portugal and Spain to follow will be showered with an Anglo-American style bailout. As you know $1 trillion won’t be enough to make the banks happy, so $3 trillion will be needed. Germany says no we are not going to do that. Well, we’ll see just who the real masters of Germany are. Such policy flies in the face of German culture. It shows you though how close to the edge Europe and its euro zone really is. Germany understands, but the rest of Europe, particularly the PIIGS are in denial. The IMF has its nose under the blanket. It will lend and participate, so that it can serve its masters by keeping these wayward states completely in austerity and bondage for the next 50 years and in that process relieve them of their sovereignty. As all of Europe belatedly understands, one interest rate can never fit all.

We can assure you that the euro zone is on the edge of collapse. It’s just a question of when. Nothing has been contained nor can it be contained. Like in the US the taxpayers of the solvent countries must bail out the banks and other financial institutions of Europe. The monetary policy created by the European Central Bank and the bankers has failed. Whether this was deliberate or not, we do not as yet know, but the truth will eventually surface. Currently the scapegoats are the citizens of these beleaguered countries, when in fact the real malefactors reside at the ECB and the European Parliament. These same players still do not have solutions other than destroying the Greek and Irish societies in the name of repaying the bankers. Whether you realize it or not, it has been a year since this odyssey began in Greece. We now have Ireland and they will be followed by Portugal and Spain and perhaps even Italy.

The main battlefield that will decide the outcome will be Spain due to its size and its persistent claim that Spanish banks are very solvent, which is symptomatic of denial. Mr. Zapatero tells us the Spanish debt crisis has passed. Our question, is he dumb, naive or a liar? How could he be so out of touch with reality? He blames Greece and Ireland for the euro zone’s problems as if Spain was a victim of theirs and blameless. Mr. Zapatero’s leadership is simply idiotic. This incompetent is shepherding his people toward financial disaster and servitude. Their real problem is the euro, the euro zone, the ECB, the EU and those who have allowed Europe to be led into a financial and economic trap. Germany, the euro zone powerhouse, doesn’t want the euro or the EU and has never wanted them. They have been it shoved down their throats, because they lost WWII. This is also why Germany was forced to merge Eastern Germany into Western Germany under such horrible terms. Germany is sick of being used as a punching bag and they want out of both.

In addition, the cost of staying in the euro is already unacceptable. Any further higher costs could lead to insolvency of currently stable countries such as Germany. Then there are the social issues. Germans expect other countries to work as hard as they do. That has not been the case and will never be the case, so they no longer want to continue to support them. Some say, the withdrawal from the euro will be too traumatic to contemplate. We say concerns regarding bankruptcy would be far more painful. A reflection of that are Germany’s recent failed auctions. Buyers are only taking 20% of the offering. We interpret that as fear that Germany will financially injure itself if it has to continue bailing out failed euro zone members.

European bond markets are beset with the same problems and solutions that the UK and US are. The ECB and the Fed have to remain active in the bond markets, otherwise they fall. They have to buy persistently and in size. This week we saw the biggest drop in bonds and rise in yields in some time, as the selling grew overwhelmingly. The yield on the 10-year T-bill rose to 3.30% from 2.50% only a month ago. The 30-year fixed rate mortgage as a result rose from 4.30% to 4.66%. The bond markets cannot function without manipulation from the ECB, the Fed and the Bank of England. Needless to say, these interventions are not solutions – they only prolong the inevitable. The bonds need higher yields to compensate for risk or buyers must be convinced solutions are in hand, otherwise in the end the ECB, the Fed and the Bank of England will end up with all the government bond issues, which will lead to collapse. The sovereign crisis in all of these countries has not been solved, nor will it be solved with current policies. Once Ireland and Greece leave the euro, Portugal and Spain and perhaps Italy would be forced to follow. That would mean the demise of the euro. Like it or not that would cause currency controls in each of these currencies. Bank withdrawals would be limited as would travel outside each country. Each country making their goods and services inexpensive and competitive with those of other nations would set currency values low. There would be no debt overhang because debt would have been decimated. Bourses would function in a primary fashion. In many ways Europe would look as it did in the late 1940s and 1950s, without the physical destruction. We were there we experienced it. Recovery would take five to ten years, perhaps longer. There will be no Marshall Plan because the US and England will not be any better off. Nations will put new currencies in place and the rebuilding of economies and markets would commence accompanied by tariffs. The cycle would begin again.

The option presently being pursued is unworkable. Perhaps $1 trillion can take care collectively of Greece, Ireland and Portugal, but an additional $2 trillion would be needed to bail out Spain ad Italy. In the end the debt load forced on the solvent countries would be unmanageable and that doesn’t even include the political will, which could disappear at anytime. Remember, Germans, French, Dutch and Austrian patience are already close to an end. At the same time there would be a major bureaucratic tug of war between those who want their national sovereignty returned and those who would want even more amalgamation, the reason that Europe is in the state that it is today.

The assumption of fiscal decisions by the EU in Brussels regarding fiscal policy will be a fateful decision, because it will strip each state of its sovereignty. Otherwise Brussels’ bureaucrats have made an expensive mess of everything else. Transferring such power under today’s circumstances would be a shortsighted mistake.

There is no changing the culture and attitude of Portugal, Spain, Italy, Greece and Southern France. They are what they are and have been for centuries. They will never have the work ethic of northern Europe and, thus, they will never be competitive. This is why the Treaty of Versailles II option will be met with aggressive non-compliance. This is a forced devaluation internally within the EU in the form of lower wages. The goal is to make exports more competitive. This is just another wrinkle in the currency war that will bring about tariffs. This is not ingenious – it is transparent and stupid. The cheapening of capital is essentially a devaluation, that is if they can get away with it, which they cannot.

The cuts are too deep too fast. Shock treatment is traumatic and often does not bring the desired results. Overnight it is expected that Greece and Ireland will balance their budgets, have no reason to issue more debt, while the ECB buys toxic sovereign bonds. Who is going to absorb those losses? The public of all euro zone countries, of course. This is exactly what the UK and US are doing through their central banks. The ECB is just a little late to the party. Monetizing doesn’t work and the debt purchased is still there to be written off. Deflation has gotten a small foothold in Europe and unless quickly reversed could end up irreversible. We do not think so though. The ECB has seen the error of its ways via Keynesianism and they will issue money and credit to meet the challenge and suffer the same inflation that others will. In the end monetization destroys all in the name of buying time.

If all of this is not going to work eventually then why do it? Why not do what Iceland has done and restructure debt, allowing bondholders to share losses. This, of course, is a form of partial default and in all probability it will work. This is also called a managed default similar to what happened in the early 1970s at the Smithsonian talks, at the Plaza Accord in 1985 and the Louvre Pact in 1987. Due to the contagion that would be caused by such unilateral policies, such attempts have to be done with all nations participating. This is the only fair way to solve the overall dilemma. There is no nation without quilt. They have all participated in cheapening their currencies, have created far more debt than they should have and have all engaged in excessive creation of money and credit. The notion that Germany, China and the US can produce capital to solve the problem is ludicrous. They all have their own problems. There can be no bailout, or the appearance of some savoir this time. Every nation has to bite the bullet simultaneously. This means that nations have to understand that quantitative easing will have to end and that a deflationary depression has to be accepted. The system has to be purged of its excesses in the creation of capital and its allocation. Banks and other financial institutions have to accept the blame for what they have done in their quest for excessive profits and power. This approach is the only way to avoid social chaos. After three years of recession and depression the world public is in no mood to play games. They have to be told the truth and what to expect. The blame game can be dealt with later. Either this happens or the world goes down in flames economically and financially.

We cannot afford more stress tests, which are nothing less than a game of fraud. Bank tests have to account for the risk of sovereign default. Most nations do not want their public or the rest of the world to know that they are financially on the edge of the abyss.

It is important to understand the concept of European government default and the potential inability to bailout banks. In the end there isn’t enough money to bail them out, even if they print it. The flipside is inflation, hyperinflation and deflationary depressions. As a consequence very few people have much confidence in their bank, or its ability to survive. As a result, credit default swaps linked to 25 banks and insurers continue upward, which means confidence and perception are worsening. In addition, investors do not believe banks’ assets are worth what they say they are.

The bottom line is the stress test does not work. How can it when they are allowed to keep two sets of books?