NightBlogger

As this mob on Black Friday illustrates, Main Street exhibits the same insatiable greed as Wall Street — avarice appears to be part of human nature. What’s worse, death by being trampled and crushed from Wal-mart crowds or death by Wall Street made hyperinflation where people starve and become homeless? The only difference between this scene and a lynch mob is the focus of the mob’s hysteria on things.

American manufacturing contracted in November at the steepest rate in 26 years, leading Europe and Asia into an industrial slump as a recession that began in the U.S. in December 2007 spread around the globe. The Institute for Supply Management’s factory index dropped to 36.2, below economists’ forecasts, and its gauge of raw- material costs plunged to the least in six decades, intensifying concern over deflation. The Tempe, Arizona-based group’s report came as factory indexes in China, the U.K., euro area, and Russia all fell to record lows. More

Louise Armitstead with The Telegraph writes…in recent weeks the cracks in Dubai’s economy have become undeniable. Property prices have slumped, demand has dried up and, for the first time, the emirate is being forced to consider calling a halt to its expansion. Some analysts are claiming that Dubai could implode, weighed down under a pile of debt and, given that it has relatively small oil reserves, no obvious way of paying for it. One said: “This has been the most spectacular spending mission on Earth. But it’s a mirage. If complex debt structures have brought the financial world to its knees, Dubai is the world’s biggest toxic timebomb.”

The possibility is absorbing Western firms. The Middle East, floating on a magic carpet of vast oil and gas reserves, was supposed to be the oasis in the global financial chaos. The hopes of the financial system, most obviously the banks, have been pinned on securing cash injections from the Middle East, while hundreds of thousands of City workers are looking to the region for new jobs. If Dubai can’t pay its debts, much of which is owed to international banks, the emirate could turn from potential saviour to yet another big problem. More

WBTV 3 News — Police say a Wal-Mart worker has died after being trampled by a throng of unruly shoppers shortly after the Long Island store opened Friday. Nassau County police say the 34-year-old worker was taken to a hospital where he was pronounced dead at about 6 a.m., an hour after the store opened. The cause of death was not immediately known. A police statement says a throng of shoppers “physically broke down the doors, knocking him to the ground.” Police also say a 28-year-old pregnant woman was taken to a hospital for observation. Wal-Mart Stores Inc., in Bentonville, Ark., would not confirm the reports of a stampede during the day-after-Thanksgiving bargain hunting, but said a “medical emergency” caused them to close the store.

photo-Azrainman

From the Top of the Great Pyramid
Stoneleigh writes,
Everyone has heard of pyramid, or Ponzi, schemes. In their simplest form they are short-lived deliberate frauds where a small number of existing members are paid from the buy-in of a larger number of newer members until the supply of newer members is exhausted, whereupon they collapse.
*********
In the developed world, there are many examples of pyramid dynamics where there is no intent to defraud at all - where even the founders really don’t understand the underlying logic of their business model taken to its logical conclusion. Direct marketing, for instance, is essentially pyramid-based - depending on an ever-increasing network of sales people, each of whom receives a percentage of their income from those they can attract into the business. If these businesses can no longer grow by attracting new salespeople, then they are ultimately finished, but as they cannot grow perpetually (or eventually everyone in the country would end up making a living selling these products to each other), they are inherently self-limiting. They can last for many years thanks to legitimate business revenues, but not forever. Early entrants will always do very well, at the expense of later ones, and the last tiers will certainly lose their stake.

Large economic bubbles, typically formed in dominant economies during periods of manic optimism (see McKay’s Extraordinary Public Delusions and the Madness of Crowds), have the same underlying dynamic. Without continual buy-in from new money - new investors or more money from existing investors - they cannot grow, and when they can no longer grow, they will collapse. Although grounded initially in legitimate business activity, they morph into structures where one has to question the motives and understanding of key individuals. In some cases there may be intent to defraud, but what is far more common is a characteristic recklessness as to the risks those in control are prepared to take with other people’s money.

In their latter stages, such structures hollow out, feeding on their own internal substance as they lose the ability to attract new investment. In the terminal phase, there is the appearance of great wealth, but it is virtual, and therefore extremely ephemeral. The next step is implosion, as the virtual wealth disappears - where the claims to wealth generated through leverage that exceed the amount of underlying real wealth are extinguished en masse. Enron was a prime example, and on a much larger scale, so is the derivatives market. Bubbles, like all Ponzi structures, are inherently self-limiting and will always collapse in the end.

At the largest scale, empires are also grounded in pyramid dynamics, which is why they too have a limited lifespan. They grow by assuming control, either politically or economically, of new territories, positioning themselves to cream off surpluses from an ever-expanding geographical area in a form of involuntary buy-in. In the past political control through invasion or physical colonization was more common, but latterly globalization has enabled the development of a sophisticated system of economic control based on international debt slavery, supplemented with economic colonization for the purpose of resource extraction. Both resources and financial surpluses, in the form of perpetual interest payments, could be efficiently extracted from the periphery and accumulated at the centre, where they led to the development of an unprecedented level of socioeconomic complexity.

Such wealth conveyors in favour of the economic centre, at the expense of the hinterland, are the very heart of empire, but without continual expansion to feed rapidly developing central complexity, they eventually fail, leaving the centre unable to sustain its existing complexity level. As with economic bubbles, empires hollow out in the latter stages, consuming their own substance in a catabolic manner in order to compensate for the inability to strengthen wealth conveyors sufficiently quickly to keep pace with the expanding requirements of the centre.

As the hinterland is increasingly stripped of wealth and resources, and burdened with the increasing environmental impact of its own exploitation, an increasing fraction of it is left too impoverished to sustain a minimum level of internal order. In modern times we speak of failed states without realizing why many of these states are failing, or the impact that an increasing number of failed states will ultimately have on our own standard of living.

Wealth conveyors are breaking down, and no amount of financially squeezing the population in the central economies can compensate for the loss of that ability to accumulate wealth from virtually the whole world. The vast majority of the central population will be brutally squeezed as the elites try to hang on to their own privileged position, but this can only sustain a very small, and rapidly shrinking, fraction of the population, and at great cost. We are living through the collapse of the final - and all-consuming - economic bubble at the end of the American empire. More

Fueled by rising unemployment and food prices, the number of Americans on food stamps is poised to exceed 30 million for the first time this month, surpassing the historic high set in 2005 after Hurricane Katrina. “We soon will have the most food stamps recipients in the history of our country,” said Jim Weill, president of the Food Research and Action Center, a D.C.-based anti-hunger policy organization. “If the economic forecasts come true, we’re likely to see the most hunger that we’ve seen since the 1981 recession and maybe since the 1960s, when these programs were established.” More

This from NEWSWEEK: People nationwide may start hoarding their cash as recession fears grow. But in Riverwest—a progressive enclave of Milwaukee—residents have another answer to their money trouble: they’ll print their own. The proposed River Currency would be used like cash at local businesses, keeping the area economy humming whatever the health of the country at large. “We can create our own value,” explains Sura Faraj, 48, one of the plan’s organizers.

It’s an attractive idea when times are tight. Communities print what look like ordinary bills with serial numbers, anti-counterfeiting details and images of local landmarks (the Milwaukee River, for instance) instead of presidential portraits. Residents benefit through an exchange system: 10 traditional dollars, for instance, nets them $20 worth of local currency. And when businesses agree to value the funny money like real greenbacks, they also get a free stack to kick-start spending. It’s all perfectly legal (except for coins) as long as it’s not for profit and the bizarro dinero doesn’t resemble the real thing. Dozens of such systems flourished during the Great Depression. In the 1990s, they re-emerged as a way to fight globalization by keeping wealth in local hands. Now the dream of homespun cash is back because it keeps people liquid even if they’re unemployed or short on traditional dollars. (The U.S. Treasury declined to comment on the burgeoning interest in local currency systems.) More

Euro Pacific Capital’s Peter Schiff on Fast Money, November 20, 2008. “Capitulation is probably the most over utilized word on CNBC. I hear it every day for months. I think capitulation, if we get it, is years away. Our markets are going lower. This isn’t just a financial crises, this is an economic collapse.”

Steven Erlanger with The New York Times writes, “People fear the future, and now with the banking crisis, they are even more afraid,” she said, her eyes reddening. “They buy a bottle at the supermarket and they drink it at home.” The plight of Ms. Guerin is being replicated all over France, as traditional cafes and bars suffer and even close, hit by changing attitudes, habits and now a poor economic climate. In 1960, France had 200,000 cafes, said Bernard Quartier, president of the National Federation of Cafes, Brasseries and Discotheques. Now it has fewer than 41,500, with an average of two closing every day.

“The cafe…is a kind of public living room, especially in small towns and cities, and it is suffering as habits and laws change. We need the cafe to have an equilibrium between the village and the world outside…Without the cafe, you lose the conviviality. You lose your mates. Business agreements are made behind the zinc of the bar. We need to preserve the cafe bar. What is a village but a cafe, a school, a pharmacy, a bakery and a city hall?”

He pointed at a customer sitting alone at a table drinking a glass of tap water. “That’s our new customer!” he shouted. Then he turned to a group of bank employees at another table and said, “You see, they got 386 billion euros from the government, but they can’t spend a cent when they come here!” More

Every day there is more breaking news, proof Wall Street’s greed is already back to “business as usual” and in denial, grabbing more and more from the new “Bailouts-R-Us” bonanza of free taxpayer cash and credits, like two-year-olds in a toy store at Christmas — anything to boost earnings, profits and stock prices, and keep those bonuses and salaries flowing, anything to blow a new bubble. Scan these 30 “leading indicators.” Each problem has one or more possible solutions, but lacks unified political support. More

You can bet the statistics are far worse than those reported by Eurostat and I don’t believe for a New York Minute France’s economy is still growing. No one in the real world believes governments, banks and politicians any more. Things are even worse in eastern Europe.

Times Online
The eurozone has fallen into recession for the first time since the single currency was introduced in 1999, official figures show this morning. Eurostat, the European Union statistics agency, said third quarter GDP across the 15-nation eurozone shrank 0.2 per cent, following a 0.2 per cent fall in the previous quarter. A recession is defined as two quarters of negative growth. Yesterday, Germany, Europe’s largest country, fell into recession for the first time in four years but it emerged today that GDP in France is still growing, up 0.14%. However, Spain admitted today that growth shrank by 0.2 per cent. More

The Telegraph
Kenneth Clarke, the former Conservative Chancellor, has warned the economy is on the brink of “meltdown” and unemployment could reach three million. Mr Clarke, 68, said the British economy is headed for a “catastrophic crisis” that will be “far worse than anything that has occurred in my lifetime”. “There will be a very serious recession next year,” he said in an interview with Telegraph TV. “I think the big problem in 2009 will be the catastrophic fall in consumer spending demand, spending in shops will get worse.” According to Mr Clarke, public respect for banks, which are “hated institutions” at the best of times, has collapsed. He was also “very concerned” that the Government could make the crisis worse by forcing banks into “lending that they cannot afford”. More

Douglas A. McIntyre
“Suddenly, The World Is OK, The Worst Is Behind”
Fed data indicates that banks are tightening lending to consumers and businesses. Credit card limits are being slashed. Access to capital is actually getting worse, except for among banks. Banks are also in for a keelhauling like nothing they have seen. LBO debt is about to begin defaulting at record levels. Private equity firms took on more debt than most companies that they bought can bear. The money center banks that put up that loot are going to be left with the check. Write-downs from these transactions could go into the tens of billions of dollars.

Citigroup admitted in an SEC filing that credit card balances and derivatives are starting to hit the same sort of shoals that mortgage debt did. Losses from that trend may approach those from mortgage failures Large financial firms probably did not get enough capital from the Treasury to cover these fool’s errands. The entire financial industry may have to hit the “reset” button between now and year-end. The federal government will be faced with putting more capital into the system.

There is every reason to believe that unemployment could be over 7% [it’s already well over 10-12%. The Govt. stats are LIES] before the end of the year. If companies understand that they are facing a once-in-a-lifetime economic event the figure could move to 8% or 9% fairly fast. That is three million jobs gone from September on. No one watching the news can miss the daily cuts at large corporations. That must be worse at small companies where access to capital is nil. There is no contradicting what has happened to the stock market recently. The smell of optimism must have been in noses of traders. Probably just cheap perfume. More

Jerry White
WSWS
Sales of new vehicles in the US plummeted in October as consumers—hit by growing unemployment, falling income and tighter credit—sharply reduced purchases of cars and trucks. Sales fell by a staggering 31.9 percent last month over the previous year in a further sign the US economy has entered a deep and protracted downturn, threatening the jobs of millions of working people. Sales fell below a million for the second straight month to the lowest level since January 1991, according to Autodata Corp. At the current rate, automakers would only sell 10.56 million cars and trucks in 2008—down from 16 million in 2007—the lowest number since 1983, when the US economy struggled to emerge from the slump of the early 1980s.

Adjusted for increases in the US population, last month was the worst since World War II, GM sales analyst Michael DiGiovanni told reporters. “This is clearly a severe recession,” he said. General Motors—which is seeking a government bailout to avert bankruptcy and expedite a merger with number-three US automaker Chrysler—suffered a 45 percent decline in sales. Chrysler sales fell by 35 percent and Ford’s fell by 30 percent. The sharp falloff also hit top-selling Japanese-based carmakers. Toyota saw a 23 percent decline despite offering zero percent financing; Honda’s sales dropped 28 percent.

Further production cutbacks and the layoff of another 10,000 autoworkers over the last two weeks contributed to another drop in overall output at US factories. The Institute for Supply Management reported its manufacturing-activity index fell to a 26-year low in October. In addition, the Commerce Department reported that factory orders fell 2.5 percent in September from August levels, much worse than the 0.7 percent drop analysts had predicted.

As a result of falling demand from steelmakers—a key supplier for all manufacturers—production at 17 of the nation’s 29 blast furnaces is being shut down. “We’re dealing with a situation that could develop into another Great Depression, if not handled properly,” Daniel DiMicco, chief executive of Charlotte, North Carolina-based steelmaker Nucor Corp., told the Wall Street Journal.

The Detroit News reported auto executives expect the market to get even weaker and are bracing for a protracted slowdown. Ford economist Emily Morris said, “If we believe that the third quarter was not the bottom for the economy, it’s likely that the third quarter will not have been the worst for industry sales either,” she said.

With workers facing increasing economic insecurity, consumer confidence fell in October to its lowest level since 1967, when the Conference Board, a New York research group, began keeping records. After years of accessible car loans, the drying up of credit has hit the automakers hard. GM’s financing arm, GMAC, is reportedly offering loans only to customers with top credit scores. In many areas of the US, only a third or so of all customers would qualify for loans, a GM spokesman said.

One or more of Detroit’s Big Three automakers are not expected to survive the crisis. Last week, rating agency Moody’s downgraded Chrysler and GM debt for the second time in three months, as well as the debt of Ford’s lending arm, citing “the pace and severity of erosion in the U.S. automotive sector” and suggesting the companies might have difficulty remaining solvent through 2009.

The decades-long collapse of the US auto industry is one of the sharpest examples of the decline of American capitalism. In the 1970s, US carmakers controlled more than 80 percent of the US market, with GM selling more than half the cars. By 2008, Asian- and European-based carmakers accounted for 51 percent of US sales.

Faced with falling market share and profits, the auto executives carried out an unrelenting attack on the jobs and living standards of workers, which continues to this day. GM, which employed 350,000 unionized workers in 1970, now has fewer than 70,000 blue-collar workers. Entire cities, such as Detroit, Flint and Dayton, Ohio, have been ravaged by plant closings and mass layoffs.

The anticipated merger between GM and Chrysler would result in the shutdown of dozens of factories and the elimination of 50,000 jobs at the two companies. Tens of thousands more would lose their jobs at auto parts suppliers and related companies. In the face of these attacks, the United Auto Workers union (UAW) has openly collaborated with the employers against its own members. More

Ilargi
The Automatic Earth
In Britain, the average homeowner has lost more on the value of his property in the past year than his/her annual salary is worth. Moreover, more than 30% of the value of all private pensions is gone. While £6.7 billion was paid in, £157 billion disappeared.

In the US, the Case/Shiller housing index is down 22%, which means American homeowners lost on average about $45.000 in real estate value. As for their pensions, the news coming out these days leaves no room for hope American citizens are any better off than their UK counterparts. While in continental Europe home prices have held up better, it’s getting increasingly clear that is merely the result of a time lag. The financial mayhem sweeping through the old continent is so severe that many parts of it will be hit much harder still than the US. The more leverage you have, the further and faster you will end up falling.

The 21st century Tulip Bubble, meanwhile, keeps on spreading. In Eastern Europe, access to foreign currencies is firmly restricted, raising people’s debts through their tattered roofs. Bank runs throughout the Arab world are a nasty sign of things to come. Wait till the effects of the latest oil price plunges starts to really seep through. I’ve said for years that nobody presently under 50 years old will ever see more than a few pennies of their pensions. The 30% drops we have already seen so far, in a world that hasn’t even begun to admit to being in a recession, let alone a depression, should be a wake-up call the size of a church bell on your night stand. Moreover, companies in many countries now want to pay less into pension funds, whose investments at the same time are bleeding billions of dollars.

Yes, there will be backlash against the loss of people’s retirement funds. There will also be a backlash against the dropping home prices. You just wait till they fall below 50%, and people realize they won’t stop falling. Another backlash will come against governments propping up banks and other failed businesses, while letting their populations go hungry. A fourth backlash will rise up to stop increases in taxes of all sorts and on all levels. They will come. And you can’t raise taxes on a people that is losing money and wealth left right and center. Not for long at least.

A fifth backlash, and perhaps the first one to erupt, will involve the $100’s of billions in bonuses and other fees that Wall Street intends to spend on its executives and traders. If I were them, I would make sure to loudly proclaim that I have refused my 2008 bonus.

I would almost start to think that the present US government aims to leave a country mired in civil war and martial law come January 20. Just a few weeks ago, I was making lists of countries that were in financial trouble. I’m now considering a list of those where people are about to take to the streets. More

Jim Willie
…until the USEconomic recession achieves galloping speed downhill. The stagflation will eclipse that seen in the late 1970 decade. Today the economic growth in the GDP was posted for 3Q2008 at minus 0.25%, even with a hefty 5.4% PCE (personal consumption expenditures). This is another fairy tale told. The US consumer activity cut the GDP back by 2.25%, while the government activity added to the GDP by 1.15% in retrograde style. So the USDollar has rallied amidst economic decay, doing its death dance. Bear in mind that the stated admitted price inflation for Q2 was only 1.5% in that GDP corrupt calculation, which avoided a negative GDP for 2Q2008. They called inflation growth, the usual corrupted modus operandi. The second quarter was when prices skyrocketed for everything under the sun, if memory serves properly. Clearly, the wizards in the USGovt stat-rat offices, employing advanced techniques, moved some price inflation from Q2 into Q3, so that a recession would not be admitted all summer long. With the USFed rate cut to 1.0% again, they are admitting the recession.

The Shadow Govt Statistics folks pitch in a comment to provide light upon corrupted data:

“Narrower Than Expected GDP Contraction Is Nonsense. The difference between the reported 0.3% annualized Gross Domestic Product (GDP) and the consensus expectation of a 0.5% contraction is no more than statistical noise, yet the reported result most certainly was manufactured so as to allow the hypesters on Wall Street and in Washington to spin their fairy tales of a ‘less-severe recession’ in order to help draw the gullible back into stocks, at least for a day or two before next week’s election. This follows earlier economic scare tactics aimed at the public to help sell the ‘Bailout’ package… With a 95% confidence interval of +/- 3% around this morning’s estimate of an annualized 0.25% contraction in real (inflation adjusted), annualized quarterly third-quarter GDP growth, the number was not even statistically indistinguishable from growth or contraction in the 3% range. A quarterly contraction in excess of 2% would have been more realistic… U.S. Economy is in a severe recession. With real retail sales, housing, non-farm payrolls, new orders for durable goods, and industrial production all showing quarterly and annual growth patterns never seen outside of a recession still in deterioration, GDP reporting eventually should show a string of quarterly contractions, with the recession dating back to fourth-quarter 2006, long before the exacerbation of the current systemic solvency crisis.”

A simple statement is required to close the preface. The financial market crises, in numerous arenas, have come in large part because the banking authorities have intentionally provided rescues only for New York investment banks and other big financial firms. Up to a month ago, the USFed had sterilized most injections into the Wall Street centers of the banking system by denying the mainstream bank system via liquidity drains. Drain the national system where households work and live, and provide subsidies for the financial crime syndicate. This is a betrayal of government to the people. Elite gain came at mainstream expense. Attention has gained on the misuse, false promises, and other misdirection of USGovt funds even in the bailout packages. The big banks are ordered not to lend, but to acquire smaller banks.

Until the global interest rate cut was announced, the USFed had not created much new money, despite the numerous rate cuts on the US side. The policy was unconventional and deliberate, with a two-fold purpose to aid Wall Street and to keep a lid on the gold price. Their bad policy, emphasis upon rescue and redemption for criminal fraud, neglect of the private sector, have left the USEconomy vulnerable to an extreme breakdown. A GRAND REFLATION WILL SOON BE ATTEMPTED, TIMED OBVIOUSLY AFTER THE ELECTION. The effect will be much like blowing up a dam holding back a lake, where downstream the price inflation will be broad, deep, and powerful. That day comes soon, and if not, then the entire US financial system will go dark. That cannot be permitted, since the aristocrats need the serfs in the public fields to work, so as to be exploited for gain.

COMMENT ON USDOLLAR PARADOX

As a preface, much response came from last week’s article about the “USDollar Death Dance” from both the public and analyst community. No hint of investment in the USEconomy is coincident with the paradoxical US$ rise. In “Plumbing the Depths of Depravity” posted of October 29 (CLICK HERE), the intrepid expert forensic financial analyst Rob Kirby, and erstwhile bond trader, confirmed my view of a twisted engineered perverse USDollar rally. He echoes one of my major points delineated, that settlement of credit derivatives, like with the credit default swaps from failed insured asset backed bonds, has produced a demand for USDollars in contract settlement payouts. His website (http://www.kirbyanalytics.com) contains a treasure trove of information that reads like criminal indictments, but without the hundreds of obscurely written pages and weird words.

In the cited article, Kirby wrote:

“What folks need to understand is that the global OTC derivatives market, measured in tens or hundreds of Trillions, is virtually all US Dollar denominated. Its SYSTEMIC failure, which is now occurring, requires US Dollar balances to clear (settle) the trades (bets). This has created the paradoxical global demand for US Dollars, the currency of a country that is fundamentally bankrupt. By rationing credit to hedge funds that were naturally levered and ‘long commodities’ (institutions like JP Morgan routinely took the other sides of their customers commodities bets, ruining institutions like natural gas player Amaranth), and propping up the balance sheets of those who were short commodities [such as] the Banks. The Federal Reserve led cabal of Central Bankers have ENGINEERED the collapse in commodities prices while creating the illusion (of a perverse USDollar rally). The engineered collapse of the commodities complex became necessary in the eyes of monetary elites because the rush for tangibles and corresponding repudiation of fiat money was becoming manic, as so CLEARLY evidenced by the emerging shortages of precious metals, gold and silver bullion.”

My rejoinder is that the crude oil price, and many commodity prices, have come down right before the election, just like in autumn 2006, a perception we share. Kirby went on to conclude that “We are CLEARLY going to HYPERINFLATE!!!!” He steadfastly contradicts shallow assertions that deflation will dominate the scene. Anyone observing the money supply acceleration in recent weeks can easily see this, yet deflationists seem unable to observe the human response in desperation. More

CNBC’s Michelle Caruso-Cabrera talks with billionaire Carlos Slim. He is the second richest man in the world with a net worth of around U.S. $60 billion. On March 5, 2008, Forbes magazine ranked Slim as the world’s second-richest person, behind Warren Buffett and ahead of former world’s richest man Bill Gates. He refers to the current economic problems as “the worst I have seen in my life. It’s a financial [pandemic] that is effecting all the world, and I am very worried about the economic consequences — the real economy, because [currently] … we have a problem in the financial economy.”

Financial Post
They held tough through the tech-wreck and patriotically spent through 9-11, but U.S. consumers brought an end to 17 years of non-stop spending in the third quarter - the last gasp of which were fueled by an orgy of debt. Americans slowed spending on everything from cars to fridges and even non-durable items like food as they put their pocketbooks on a diet. Personal income was gutted - the annualized quarterly drop of 8.7% was the biggest since 1947 - as second quarter government stimulus checks wore off. Fear about their jobs, their stock market portfolios, their home values has finally sunk in.

Almost every stop on the retail spectrum is beginning to get hit, with reports of luxury spas starting to offer deep discounts and retailers like Bergdorf Goodman offering free shipping as the holiday sales season ramps up early. If auto sales are at a virtual standstill, sales of recreational vehicles have collapsed, noted David Rosenberg, chief North American economist at Merrill Lynch. Deliveries of the gas-guzzling hogs were down 42.5% year-over-year in September and 51.0% from the recent peak in March. Between 2001 and 2007, the ratio of U.S. household debt to disposable income soared to 140% from 100%. Americans took on more debt in those six years in relation to their income than they did the previous 40 years together.

…when consumers stop spending it does not take long for a vicious circle to set in, as companies lay off and cut production in response, further dampening spending. American Express announced Thursday it would lay off 7,000 workers, freeze hiring and management wages as rising defaults and a cut in consumer spending hit the company hard. More

Jim Willie
Golden Jackass.com
Listen to Jim Willie speak his mind on the death throes of the U.S. Dollar with the economy on life-support. Click

What is pushing the USDollar up cannot be construed as anything remotely resembling healthy factors. In no way whatsoever does it resemble investment. It is more like paid off death contracts, paid off death investments, paid off transfers from toxic US bonds into what are falsely regarded as safer US bonds with a guarantee from a crippled USGovt. Foreign financial entities are liquidating on massive scale. They need a tremendous amount of USDollars in order to complete transactions. Also, a tremendous amount of USDollars are needed for CDSwap payouts as defaulted bonds are resolved. Almost all CDSwap and other credit derivatives are paid out in USDollars. The Lehman Brothers payout was full of lies, again. The Lehman Brothers total volume of corporate bonds was $160 billion, but $400 billion existed in total CDS volume tied to them! It is no surprise that the Dow and S&P500 stock indexes fell hard (by almost 400 points on Dow) and on the Lehman resolution day. And market mavens boasted of no impact on the Lehman funeral date!

The DTCC (Depository Trust & Clearing Corp) reported only a net $5.2 billion payout on the Lehman Brothers failure CDSwap resolution. The ‘Dis-Trust Clearing Corp’ might want to check credit derivative experts who claim between $220 billion and $270 billion in that total after netting. By the way, the DTCC is the official banking entity that oversees all stock clearing overnight, including all the naked shorting. The de-leveraging process has left the central bankers empty handed, exposed as having empty financial cupboards. Thus the need for massive central bank swaps from the USFed, which has perversely farmed out its function to foreigners. In fact, the foreign central banks might be in possession of more US$ inventory items than the USFed. So the US central bank has asked foreign central banks to do its job, and to manage the world reserve currency? This amidst a US$ rally!?!

The Credit Default Swaps are capable of burning Hiroshima holes all over the US financial system, resulting in USEconomic implosion from eliminated bank and financial system structures almost entirely. The process has only begun, but in darkness. The other purpose for big bailouts was to prevent CDSwap explosions, risking a string of bombs to go off. The key aspect of CDSwap contracts is their hidden nature, with fuses intersecting in the dark.

When the market mavens talk about the de-leverage process, they refer to speculative investments being liquidated. Oftentimes, they do not include in the story how Wall Street firms, desperate to stave off bankruptcy, are targeting viciously their own clients. The big accounts lie in hedge funds, where the private wealthy are being decimated. Credit is being pulled. Margin calls are being delivered. Margin ratios are being raised. Those funds whose positions are aligned with the predators on Wall Street continue in their investment portfolios. Those funds in opposition are attacked with artillery, carpet bombs, and early morning raids. The USDollar is rallying amidst this type of sinister liquidation. The result has been numerous spread trades anchored by the USTreasury Bond are forced into sale. That means a USTBond buyback occurs from the short cover on the trade. Whether a spread on mortgage bonds, corporate bonds, emerging market bonds, or crude oil, or gold, the trade is liquidated, and a USTBond is bought back. NO TANGIBLE END DEMAND, ONLY USTREASRY BOND SHORT COVERS. This is the basis for a US$ rally?

WORSENING US$ FUNDAMENTALS

How many times have we seen the US stock market go down, non-government bond yields rise, the USDollar rise, and the USTBond yields fall? That has been the norm in the last few weeks. These are death signals, not investment signals. The USEconomy cannot afford liquidation and constricted credit, a well-known fact, seemingly forgotten today. These signals come amidst falling confidence, more bank distress measures, more job loss, more home foreclosures, and lately, trouble with letters of credit at port facilities.

Financial markets, including the USDollar, have yet to factor in the deep USEconomic recession. The USDollar rally flies in the face of deteriorating fundamentals. See job cut announcements at Caterpillar, Merrill Lynch, General Motors, Chrysler, several Wall Street firms including Goldman Sachs today. Weekly jobless claims at close to half a million per week, equal to peak during the unrecognized 2001 recession. See the UMichigan consumer sentiment, Philly Fed index, Empire Fed index, leading economic indicators, durable goods orders, on and on. Retail sales, the backbone of the backwards USEconomy, are plummeting. That is, the plummet is before inflation price adjustments. Car sales are plummeting also.

Exports are to be worse from the higher US$ exchange rate on the table, combined with slower foreign economies. The improved export trade has been a big boast from the lunatics running the asylum. The USEconomy is accelerating in its decline, certain to produce a recession and huge USGovt deficits. That deficit is likely to at least double and possible quadruple next year. USTreasury Bond issuance cannot conceivably finance all, or at least half, of the commitments. The printing press will do the rest, which will cut down the US$ valuation. The USDollar decline lies ahead, when the distortions slow or come to an end. Gold will soar on the other side of this liquidation.

An extreme backlash attack is coming against the USDollar. Rising import prices in foreign economies have already caused alarm. Foreigners will soon attack the US$ in a matter of time, using heavy US$-based reserves. Their banking sectors are in disarray, primarily because they are intimately tied to the US$ and USTBonds. The process has begun with Brazil and Mexico in Latin America, to use their strong reserves and sell into this queer US$ strength. That is what reserves are for. The process will spread to other nations.

GOLD MARKET CLOSE TO BREAKING

The gap between the physical gold market and paper gold market is widening. An example bears this out. In Toronto this week, a major off-market gold transaction took place. The price paid was $1075 per ounce on the physical transaction. Its volume was in the multi-million$. There was no US involvement in the transaction, and the settlement was in euros. Enormous repositioning is ongoing by the groups that will participate in the new, partially gold-backed currency. My take is this movement is from a large financial entity with global activity, and ties to central banks. It might be tied to the upcoming split in the euro, into a Nordic Euro and trashed Latin Euro. The Nordic version might contain a gold component. This and other transactions are taking place with European settlement. They are being satisfied in the alternative market, far from the distortions of COMEX. This was a physical transaction with the real metal being moved. Big shifts occur behind the scenes. A couple of months ago, 400 metric tonnes were moved into storage with the Royal Canadian Mint by a sovereign entity.

The more massive the paper manipulation, the more violent the coming correction. The asylum managers are losing control of their paper-physical arbitrage. Watch the gold lease rates, and silver lease rates, which have each more than tripled in the last two months. Lease rates precede price movement. Bullion bankers, including central banks, are reluctant to lease their physical supply. This time is no different, an event to come after the COMEX criminality is swept aside, or simply overwhelmed in return. One well-informed source, with over two decades of gold market experience, actually expects arrests to take place among COMEX officials before long.

John Embry of Sprott Asset Mgmt has raised the possibility of a December gold futures contract default. He is not predicting it, or claiming it as certain, but rather mentions how talk centers on the December gold contract as having extreme stress for actual delivery. Pressure is building. The December contract not only is end of quarter, but end of year. He suggests a possible default. He said, “there is probably going to be such an event to change perceptions.” He cited a possible force majeure that could act as a “seminal event that defines the whole situation.” He explained that the physical gold price would then dictate the paper gold price, a return to normalcy, and with a gigantic move up in the gold price. Right now the paper gold market is overwhelming the physical side, but the physical side is constricted on supply. He explained that hedge funds are being unwound on a massive scale, slaughtered by margin calls. The long side must call for delivery on many contracts. He also expects there will be many questions on the Exchange Traded Funds soon as well, although those are surely not as important as the COMEX contract defaults. Watch and listen to his interview on the Canadian Business News Network (CLICK HERE), and be sure to move to the 10 to 11 minute mark.

NEW BRETTON WOODS II FARCE

Last weekend in Brussels, G8 Finance Ministers met. Among other things, they discussed a reform to the global banking structures. For the many challenged on geography, that city is in Belgium, headquarters for many European Union functions, in Western Europe. Creditors were not present, which means the finance ministers were talking to themselves. Credit masters were not invited. The nations whose banking systems are in the process of implosion are essentially attempting to revise the global currency system. Those in attendance constitute the losers! However, the Arabs and Chinese were not present. This seems entirely backwards. The bankrupt nations do not dictate to the creditors terms of a revised agreement.

Imagine a large business saying the following. “We are bankrupt. We want a meeting. We are going to dictate to you bankers anyway. We are broke. Our economies are shattered. Our banking systems are in ruins. But we going to tell you how we are to restructure our debt and rework a new system. We realize our debts to you are bigger than we can ever repay. We realize we cannot continue in commerce without your continued extended credit. But we will force upon you a new system. It does not matter what your opinion is. You do not have a seat on this elite committee, sorry!” THIS FLOW IS NOT FROM THE WORLD OF REALITY!

No! Bankruptcy receivership is next, where creditors will be left with few options. They will be compelled to run management committees, and dissolve many functions of government. Creditors will probably await the G8 initiative, then summarily reject it. They will next propose their own new global financial structure. The teenager’s credit card is about to be taken away, when the irresponsible kid proposes a new repayment system, new promises, new chores done even. The kid has burned down half the neighborhood, yet thinks he can call the shots! Sadly, the parents will probably ground him and force a tutor to direct his studies, and force a strict drill sergeant to direct his work activities. His friends will not be permitted to form new teams that include him. A ‘Post-US World’ is being planned, and Americans are the last to know. Entire new barter systems between a key pair of nations is about to be launched. Regional bond and commodity organizations are being formed, with exclusion of the US. The US press reports nothing on these important developments.

Foreign creditors will form new committees, which will be recognized in time as the Receivership Committee. Foreigners are watching in horror. Decisions have already been made, with Americans the last to know. In order to arrest the cancer they so clearly see, they are ready to force a complete upheaval. The USDollar will lose its global currency status, a thoroughly abused privilege. The above lack of disclosure only reinforces their motive to take action. They will move when they must, upon a system failure, or when they are challenged, or when flimsy attempts by debtors are made to dictate reform.

Without any changes forthcoming soon, the foreign banking systems and economies face huge threats to failure. To friends, family, and contacts, my approach has been to attempt to explain the underlying forces behind revolutionary financial change. Foreigners must cut off a cancerous body part, the one attached to the United States. Foreigners must cut off flow from a toxic systemic organ, the one attached to the United States. CUT IT OFF OR RISK DEATH. They must disconnect of USDollar from the global currency system attached intimately to their own financial and economic systems. They must to survive.

ARAB GOALS & MOTIVES

Arabs clearly lust to control and manage a global gold trading center. It will be in Dubai in the United Arab Emirates. The new Gulf dinar currency will pave the road to that center. The Gulf Coop Council is biding time, cutting time delay deals, warding off pressure by the USGovt, appeasing with weapons contracts from the USMilitary, and is working behind the scenes to create a new dinar currency. The new Gulf dinar is likely to be primarily gold in its backing. So, foreign nations will soon be forced to purchase the dinar for all or most of crude oil payments. This forces the purchase of gold in order to purchase crude oil. The demand for gold will thus fortify the global banking system, by means of commodity settlements. Many details are unknown, but the basic structure has been slowly come to light. A new motive flashes red in front of Arabs to institute some changes FAST. The crude oil price is down, cut in half from July. Their revenues are sharply reduced. Russia figures into the complex deal to launch the dinar. The Saudis and small sheikdoms need security protection. The next chapter will involve protection amidst a gold-backed currency, not a military-backed currency, in Saudi eyes.

ISOLATED USTREASURYS

The other side to the Arab dilemma is that the USTreasury Bond demand is quickly eroding from Petro-dollar recycle on trade surplus. The USGovt finds itself as relying far too much on foreign central banks for demand of USTBonds, relying far too much soon on the printing press. The USTBond demand is missing the oil surplus in recycle. Their reduced and unstable oil revenue motivates the Arabs to install a new payment system, based upon an end to the ugly defacto Petro-dollar standard. It shamefully is the basis of what my analysis has called a Protection Racket.

The incredible fact evident in the data is that until mid-September, the US Federal Reserve has drained liquidity from the US private banking system in order to offset its colossal bond swap bailouts for major Wall Street and New York money center banks. Their objective was to avoid undue US$ money supply growth. THEY WERE TARGETING GOLD. They essentially drained the lifeblood from the USEconomy on Main Street in order to subsidize fraud sanctioned and approved on Wall Street. Only since mid-September has the USFed been monetizing USTBond debt issuance. They are running scared, printing with abandon. The gold price is falling as the USDollar printing press is rapidly heating up, no longer offset by bank system drains. Details are in the Hat Trick Letter report.

DESERVED DISRESPECT TO GREENSPAN

Can you believe what is happening before a Congressional banking committee? Greenspan is being grilled, as his past errors are vividly pointed out. His past memos are being read back to him. His wrong premises are being questioned as having being totally discredited. His opposition to credit derivative disclosure is being challenged. His opposition to Fannie Mae reform is being challenged. He has been brought to task for his steadfast opposition for reform in the past during his tenure as USFed Chairman. He is being interrupted by lowly Congressional reps. His time to speak is being cut, in defense of others to be grilled. HE IS BEING SHOWN THE DISRESPECT DESERVED OF ANY FAILED PUBLIC OFFICIAL. Maybe they will demand to know who paid his second paycheck from Switzerland, and what his agenda was! Not likely! My view is that Greenspan was a primary key person used to take down the US banking system, to pave the way for a bigger agenda. These are intelligent people who knew what they were doing, who were the cheerleaders, even the Mythology High Priest.

Greenspan admitted a grand flaw in his free market ideology. He admitted being shocked that financial markets did not self-regulate. Hey Alan! They never self-regulate amidst a Fascist Business Model, since regulators and law enforcement is compromised as much as humanly or institutionally possible! He admitted a failure in the global financial market structure as he perceived it, a stunning admission. He acknowledged the USEconomy is faltering badly. He sees the rise in job layoffs and unemployment. He sees the retrenchment in consumer spending. He sees the price declines in housing without abatement. He forecasted a worsening recession.

His biggest admission is this. He admits to a flaw in the structural model perceived in the critically function for global banking. Wow! THAT IS A BIG ADMISSION, NOT PROPERLY PERCEIVING THE GLOBAL BANK STRUCTURE. He admits to how his risk pricing model did not take into account periods of financial stress. Hey Alan! Is that not what they are designed for? He used to boast for a full decade how offloaded risk via credit derivatives was a sign of sophistication, which enabled economic expansion. Instead, my view is that risk offload devices contributed toward an expansion atop a bubble, which when burst, killed the entire US banking system and then the USEconomy. He used to boast that credit derivatives shared the risk, but in fact it resulted in destruction on a widespread systemic basis. Recall the many claims made by Bernanke, that the subprime mortgage bond bust would be contained. The former Princeton Professor is not a good student of banking and economics! Unlike me, he is greatly encumbered by the limitations of economics credentials! Mathematics and statistics are pure science and its application as artistry.

NO SOLUTIONS FOR ECONOMY FROM BAILOUTS

Almost all US-based bailouts to date are to pay for dead financial firms. Their shareholders and bond holders and asset base have been repaired but not restored. To think this benefits the loan process is folly. It facilitates retirement to the Caribbean for corrupt bank executives. The flow of federal funds will not find its way to the people, or at least only pennies per dollar will. The ‘Top-down Approach’ is destined to fail because the corruption, bond fraud, accounting fraud, financial instrument shell game, and other assorted illicit procedures are the cause of the problem, and all lie at the top of the structure intended to trickle down! To expect benefits downstream is lunacy. In fact, the devices to assist and subsidize the criminal behavior at the top are vastly expanding with multiple branches. No less than five special purpose vehicles created by JPMorgan Chase were announced on Wednesday. The number of USFed lending facilities, all to big banks, none to people on Main Street, has exploded to such an extent that one needs a sportsbook guide to comprehend all the acronyms. David Rosenberg of Merrill Lynch even coined the YAP, yet another program. Proliferation might be what the architects of the Financial Coup d’Etat intended. Confusion is the best friend of coup architects, just like truth is the first victim of war.

The people receive $1 for every $500 given to Wall Street elite in fraud redemption. The rank & file population entered a ‘Revolving Door’ of loan repayments that often do not reduce the loan balance, assured to end in foreclosure within a year or so. The same nonsense of ‘Trickle Down’ was prevailed when it has no past precedent of succeeding.

The lack of disclosure is a tragedy. Congress demands no better disclosure, and receives none. The Lehman Brothers resolution has been conducted in total darkness. Evidence coming my way indicates that JPMorgan is using the dead Lehman carcass as a vast private arsenal to attack hedge funds. Some such funds have most of their assets frozen, while their positions are attacked. What is happening is criminal, a climax of this administration, which has been taken over by Wall Street. A complaint has been made that Treasury Dept documents look like redacted CIA documents, hardly what is needed to instill confidence. One official decree after another undermines investor confidence, the last being short rule restrictions on financial stocks, with an exemption given to Goldman Sachs. This is a selective bailout of Wall Street, a process run by Wall Street, permitting financial crimes worthy of 1000-page indictments.

DISTRIBUTION CHANNELS INTERUPTED

Big disruptive events are occurring in the distribution system. Letters of credit are routinely being refused by export nations who distrust US sources. A fall of 10% to 20% in shipping traffic to western US ports has been reported. Ships are empty at Asian ports, some even loaded but interrupted on their voyage to US ports and European ports. Many details are given in the October Hat Trick Letter reports. Even manufacturers of shipping vessels are being severely affected, as credit has interrupted construction projects. Indian suppliers are often demanding 100% upfront on costs to east coast retailers, again showing the distrust. Almost total attention has been given to banks and credit markets and stock markets. The USEconomy is moving from recession toward something different from depression. The current interruption could actually be more like disintegration. Short-term credit is soon to interfere greatly with truckers and railways in distribution channels on the domestic side, much like letters of credit are wrecking havoc on the overseas shipper side.

The next big shoe to drop is credit cards. Bank of America has announced plans, not yet fully implemented, to cut back on credit cards to lower FICO scorers. The lower 60%-ile of credit score recipients will find themselves without credit cards at all. One friend told me that he used to own 10 credit cards. Recently, all but four were simply discontinued, but a few were not used. Other friends said most of their credit limits were slashed. Changes are coming. Then the next big shoe to drop will be commercial mortgage default. No reprieve, rest, or respite for US bankers. Changes are coming. It will force defaults in most every conceivable financial corner.

DISHONOR AMONG BANKERS

The system is breaking down. Just when the heart attack signals are actually improving, although only slightly, the USEconomy is falling off a cliff, as unprecedented decay is occurring. Some improvement has been seen with the short-term LIBOR rate, the money market funding, TED spreads, and mortgage bond spreads. But bankers and financial subsidiaries are in focus for dishonor.

The following message came yesterday to my desk. It pertains to General Electric. It involved dishonored Letters of Credit (L/C). The US banks not only distrust each other, they are engaging in criminal activity, like contract fraud. If big enough, or connected well enough to the power center, it is permitted. Again, no solutions, only proliferation of chaos. More

John Browne
On Monday October 13th, the Dow took the fifth biggest upward leap (in percentage terms) in its history and, most notably, since the 1930’s. It appeared that Paulson and his fellow G-7 finance ministers had solved the credit crisis. Despite the fact that G-7 taxpayers will be stuck with $3.5 trillion of liabilities to support their governments’ bailout plans, the stock markets nevertheless bustled with euphoria. The next day, reality dawned once again, and all markets closed down. The truth is that these enormous bailouts enacted around the world, most notably in the United States, have done little or nothing to tackle the enormous deleveraging that is driving us into a serious recession and, if badly handled, a depression. Increasingly, politicians and commentators are talking about the need for a massive, new stimulus package, likely to cost trillions more dollars.

The extraordinary thing is that virtually no one dares even to mention the real underlying problem–that America has for the past thirty years been consuming more than it produces. During that time, the American consumer, accounting for 72 percent of Gross Domestic Product (GDP), has been financed from the retained earning of foreigners, most notably of China, Japan and more recently Russia. Based on the willingness of these foreign producers to provide the funds, Americans have engaged in an orgy of easy credit and excessive consumption. In short, America is no longer paying its way, and is living off the earnings of its economic neighbors.

It is a rake’s progress and can not last much longer, especially as the creditor nations, such as China, will soon need their own money back in order to finance their own leap to ‘developed’ economy status. Millions of words have been spoken over the last month alone about how America must solve its economic and financial problems. But the stark realities that will result from massive deleveraging in the face of a massive recession have been barely considered. Apparently, no one dares to mention it.

We feel our readers should maintain an acute awareness of these underlying problems, particularly as the Presidential candidates, financial regulators and Wall Street cheerleaders appear bent on concealing the underlying truth. The $3.5 trillion thus far committed to lubricate the credit markets have yet to produce any meaningful result. Even that vast total is unlikely to be sufficient to meet the tidal wave of bad loans yet to hit the banking system.

As the massive Bush-Greenspan credit orgy deleverages, corporate profitability is likely to fall dramatically, driving stock prices still lower, further eroding personal retirement accounts. Once confronted with unemployment and bleak prospects, even those who have been model financial citizens will be forced to default on credit card debts, auto and personal loans and, of course, home mortgages. The tsunami of defaults crashing into our banking sector will ultimately overwhelm all government attempts to contain the damage. As the mighty American economy shrinks, other countries, such as China, will see their export earnings fall. They may have to sell parts of their vast holdings of U.S. Treasury bonds, driving still higher the cost of dramatically increased U.S. Government borrowing.

On average and adjusting for inflation, U.S. equities have under-performed badly in this century. This will continue until America restructures itself to produce more than it consumes. Meanwhile, the short-term Treasury bonds of hard currency governments, some offering negative yields, will continue to perform well in capital appreciation against the U.S. dollar. China is likely to experience genuine, profitable systemic growth. However, in 2008 its stock market has fallen by some fifty percent. As a result, China and the BRIC countries could present good investment opportunities as we move into 2009.

As the recession deepens, gold could fall in price, at least in the near to medium term. But, the world’s financial system will remain precariously balanced for some time, which will create a floor for gold. Furthermore, the vast amounts of ‘monopoly’ money now being injected into the major economies will eventually show up as inflation, possibly even threatening the viability of paper currency. Prudent investors will continue to hold a major allocation in gold.

The number of food stamps being distributed in the United States approached a new record this summer and promises to reach a new peak with repercussions of the financial crisis starting to bite. More than 29 million Americans received food stamps in July, an increase of close to one million over just three months earlier, according to the latest figures released by the US Department of Agriculture, which distributes the benefits — these days most often by magnetized debit cards — to households living below and just over the poverty line. It is the highest number since 2005 when, in the aftermath of catastrophic Hurricane Katrina, some four million additional people sought food relief, pushing the total to a historic high of 29.85 million. The latest figures do not yet count the new requests for assistance in September, when several financial institutions collapsed, stock values plunged, housing foreclosures soared, and job losses spiked to the highest level of the year. More

New York Times
In Korea, exporters are suddenly struggling. In India, industrial growth has slowed drastically. In Sweden, Volvo is cutting thousands of jobs. In Japan, which thought it was immune to the market chaos, a credit squeeze seems to be forcing small companies into bankruptcy. Around the world, fears of recession have fed a stock market panic, as worries about toxic assets spread from the financial sector to the credit markets and now to the broader economy. Companies from Germany to Asia are hoarding cash because credit markets are tight. The sheer uncertainty of it all is upending plans for businesses to expand. Consumers have pulled back, just as they received some relief from high oil prices.

Even creditworthy companies cannot get money in Europe. And across Asia, export growth has slowed to a crawl or started declining in real terms — and that was before American retailers announced steep sales declines on Wednesday. The United States, once the engine of the global economy, is ailing and in no position to inspire confidence, much less point the way around or out of recession. Americans are seen as both the root of the problem, and powerless to solve it. But no government effort has been able to stanch the bleeding — even the unprecedented coordination of central banks on three continents, which only generates more fear.

The liquidity provided by the European Central Bank seems to be going through a revolving door. After releasing billions of euros into the market, the bank took in a record 102.8 billion euros on Sept. 30 and 64.4 billion euros on Thursday for banks. Instead of lending their spare cash to each other or the rest of the economy, banks have parked it with the central bank at extraordinarily low interest rates. “No sane banker with good contacts and clients would do this,” Erik Nielsen, chief Europe economist at Goldman Sachs in London, said. “It would be a huge arbitrage profit if they wanted to lend, but they don’t.”

“The United States is beyond saving — our only hope rests with China,” Dick Chen, a middle-age manager, said as watched the markets with dismay Friday in a Hong Kong trading room. For the last six years, the Chinese economy has charged ahead despite every obstacle. In fact, Beijing was more concerned that the economy would overheat, spurring inflation. So China ran a budget surplus, repeatedly raised interest rates and required banks to deposit a remarkable one-sixth of their assets as reserves to the central bank. Now, facing slower growth, Beijing is suddenly trying to prod its economy by cutting interest rates and taxes and lowering reserve requirements. But the government is finding the economy is already looking a little out of breath. More

Bonds are more popular with investors than at any time during the last decade amid a huge flight to safety in turbulent markets, Merrill Lynch’s monthly survey of global fund managers has found. “Investors care little about inflation with recession on their doorstep and the banking system under pressure,” said Karen Olney, European Equities Strategist at Merrill Lynch. Inflation expectations have dropped to their lowest level since 2001, she added. More

Jim Willie CB
The bankruptcy of America is the story of the year, as 2008 is the year the system breaks. The crowning blow is the exported bond fraud, its lack of prosecution within the US, and the exclusion of US banks and some corporations from the planned ‘Post-US World’ underway. Numerous summit level conferences where important commerce and banking agreements have been recently forged on several continents, all having excluded the United States from participation. Big movement is seen in the US bond market. Foreign central bank intervention has accelerated in the last several weeks. The 10-year TNote yield is at the 3.6% level after hue & cry of price inflation all through spring months. NO SURPRISE HERE! We might be seeing a double top failure in the long-term USTreasurys. The historical chart bears this out more clearly.

Along with a USTreasury rally has come a giant swap trend, as foreign wealth centers have traded out US Mortgage Agency bonds and into USTreasurys, adding to the blowoff top. Some foreign entities are openly requesting bailout redemption of impaired bonds. All corners seem to be hunkering down into USTBonds as a safe haven. The risk of an actual default in USTreasurys must be taken seriously, in view of upcoming intentions, however unwillingly executed, to nationalize everything under the sun inside the US landscape. The natural nemesis in financial markets for gold is the USTreasury Bond. New supply puts it at great risk. The printing press with raised lamination will produce huge USDollar output soon. Nationalization demands it. The consequent risk to the USDollar and USTreasury Bond is deep, profound, and stark!

As the USEconomic recession has taken grip, capital gains tax revenues and payroll income tax revenues are way down. Almost no specific story supports the growth story told. Even the export trade will be tripped up by global slowdown. The USGovt federal budget deficit will be enormous, even without the nationalization demands. The collection of sectors seeking imminent bailouts in the nationalization theme include Fannie Mae & Freddie Mac, General Motors and Ford, Wall Street banks, and some airlines. Add to that demand some staggering funding requirements for the Federal Deposit Insurance Corp (covering failed bank deposits) and the Pension Guarantee Fund (covering failed corporate pension funds), to raise strain to a crescendo. Did PIMCO actually hint they wanted a bailout too? Of course, never overlook the sacred military budget demands, never to be challenged or reduced, but always adding great USTBond supply.

During the past two decades, foreigners have accumulated gigantic USTBond holdings. Now finally, too many foreign enemies hold huge amounts of USTBonds, a risk my work has mentioned steadily. The US no longer controls its destiny. The risk to sovereignty has built to a point of recognition as capital sale replenishment deals abound, a frequent occurrence for big banks. The USDollar is rallying when its financial condition is imploding. The driving force for the deteriorating crippled US condition is the housing decline. Just today, more dreadful home foreclosure and delinquency data was released. The story of US relative strength is absurd on its face, and yet another important chapter in the US Economic Mythology treatise. Such a contradiction invites a reaction.

Watch the South Koreans not invest in either Lehman or Merrill Lynch, since they are not fools. Did Lone Star actually sue the Koreans so as to block this rescue effort? Look for one or both of these Wall Street crippled firms to fall into bankruptcy soon. The climate will change radically as a result. The end of the Q3 quarter is nigh, and admission of renewed larger bank losses is a cinch. They are nowhere near the end of their mortgage nightmare. Watch Citigroup and AIG for matching failures. The Credit Default Swap conflagration is located on the AIG doorstep. The sovereign risk to the United States is now overshadowed by a risk of pre-emptive financial attack from foreign locations. The point here is that a mountain of new USTreasury supply is guaranteed to come soon. The new supply flies in the face of rising price. The timing for a bond attack is soon possibly perfect. For years, nobody has questioned the USTBond as the only viable parking lot for surplus capital, the largest and most liquid market in the world. Times will change. Third World bonds do not flourish!

The price inflation front is another big risk for USTreasurys. A CPI over 5% for back to back months represents a threat, but it is allayed by dormant wages. Next year, many sharp analysts expect the US Consumer Price Index to top level 10% level. Already the jobless rate surpassed 6% in the U