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Whether
Americans and Westerners in general like it or not, the Chinese have become
and will remain the key drivers to many economic and financial market developments,
progress, and averted wreckage. The intrepid lapdog US press, loyal to the
syndicate, is a critical element to maintain distractions. Of course, China
must adapt and react to their own stumbles and accidents, assured since for
years they have maintained a tight link in monetary policy. Doing so has
linked their asset bubble expansion and bust cycle to the deadly one in the
United States, and filled their coffers with US$-denominated toxic debt
securities. However, China has three advantages over the US that stand out.
They have $2.65 trillion in savings, rainy day money in a war chest. They
have a vast industrial base, courtesy of the US, the West, and Japan, which
donated the technology for the fabled disastrous low-cost solution. They have
an expanding middle class. Neither the US, the UK, nor
Western Europe has anything remotely similar to these three benefit
allowances. It is slowly becoming clear that the US granted the Most Favored
Nation status to China in return for massive gold & silver swaps to the USGovt. The Wall Street fraud kings illicitly sold the
leased bullion into the market, to sustain the American fiat paper congame, and thus a betrayal to the Chinese.
The
Beijing leaders are highly motivated to unseat the Anglo bankers from their
perched throne, emboldened by vengeance. The betrayal was to the American
people also, since waves of jobs went to China from US shores, since the US
sold not only its own Fort Knox gold inventory, but Western Europe's also,
then China's to boot. Those who believe the USGovt
has any gold reserves at all should donate their cerebrums to science while
still alive, a euthanized suicide. The USGovt in
all likelihood is in possession of less than zero gold, owing both Europe and
China massive amounts. It is the American ticket to the Third World, paved by
lost industry, locked by vast debt, assured by broken economic principles
blessed by high priest heresy. The US banking leaders still believe the US
can revive itself by the flood of more debt and stronger consumer spending,
without a clue of what legitimate income means or where it comes from.
Before
delving deeper into this important thesis topic, a comment is in order
regarding President Obama's State of the Union address and his plan. As
forecasted by the Jackass on repeated past occasions, the entirety of the
sacrifice to reduce the USGovt budget will come
from the domestic, non-defense, non-security side. Aid to businesses and
households and dedication to infrastructure will be removed. The higher priority
war machine will be preserved. He called it non-security measures, implying
the sacred nature of the security of the nation. Ironically, the security of
the nation has been put in peril from unspeakable banker fraud, abandonment
of industry, and neglect of infrastructure, not to mention the continued
ignorance toward capital formation and dutiful embrace of a consumption
mindset. The Obama Admin will remain committed to gutting America,
undercutting the middle class, and feeding the deterioration of the USEconomy. He will assure a reduced domestic blood supply
and food intake. Expect more empty talk of clean energy and jobs. The
greatest potential for spending cuts are from the
defense budget, for which the USGovt spends more
than the rest of the world combined. A vast array of military bases,
embassies place on foreign soil, and weapons projects will be preserved. The
maintenance of the foreign threat will be steadfastly maintained. The ethics
of drone weapons, regeneration of enemies, destabilization of governments,
and the absent economic multiplier effect from defense/offense spending will
all conspire to weaken the United States in ways that our leaders seem
incapable of understanding. They promote the Fascist Business Model, the very
same that has contributed to the wreckage of the nation. The victims are
economic growth, rule of contract law, sanctity of private property, and
truth. The legitimate threat to the nation comes from its internal situation
and the impunity of large scale financial crimes. When reference is made to a
Sputnik moment for the United States, try not to laugh. A deeply indebted
nation with spiraling deficits latched at the hip to a currency besieged by
monetary inflation cannot afford any grand initiative, especially when its
highest national priority is war. Survival will soon escalate to a higher
priority.
OVERVIEW OF THE CHINA-EUROPE CARD
The
Chinese are well along a full court press to secure Gold bullion and dominate
in the next phase of the global chess game that will span the next decade or
more. With the expansion in the
European Dollar Swap Window by the Chinese, the Euro currency has risen
impressively. No benefit to Gold has been realized despite the USDollar slide in the last month. One must suspect
the Chinese are busy as yellow jacket bees dumping USTreasury
Bonds. But also, the Chinese might have suspended some of their Gold &
Silver purchases. They might have actually drained for a time the COMEX gold
inventory, and await its replenishment. Enter the BIS after midnight from the
loading dock. Beijing leaders might be anticipating a high volume Gold
bullion purchase flow from the back door in Europe. Refer to EuroBonds bought at discount using the Dollar Swap Window,
converted eventually to Gold. My guess
is the harlot Intl Monetary Fund will facilitate the Gold conversion, from
the EU member nation central banks associated with PIGS nations. If
inadequate supply of Gold is a problem with PIGS nations, perhaps some gold
swap contracts can be enabled with the help of the Bank For Intl Settlements
in Switzerland. But those swaps would seal the PIGS nation fates, since they
would hand over industrial, commercial, and other collateral, assuring banker
elite ownership of whatever keys to the kingdom are left. Therefore, Gold is
vulnerable to hits during the time China takes its foot off the accelerator
pedal. China has found a way to purchase high volumes of Gold bullion at a
discount. The discount is essentially the EuroBond
sovereign debt discount under distress, which might be in the 10% to 20%
range. So the PIGS debt will be rescued for a while, but with forfeit of
their central bank gold, or borrowed gold.
TRADE AS GEOPOLITICAL LEVER
The
last several decades have revealed some sordid bilateral contracts, critical
deals like what was made with the Saudis. The USGovt
pledged to protect the House of Saud and their kingdom, helped along by
massive USMilitary weapon sales. The Saudis in turn
would demand payment for crude oil in USDollar
terms exclusively. The entire Persian Gulf has toed the line on US$ oil sales
ever since, even other OPEC players like Nigeria and Indonesia. A difficult
balancing act has been required, and still is required, to keep the peace and
minimize the friction between Arab nations and the headquarters of the
multi-faceted syndicate helm that has controlled the USGovt
with tight reins for nine years and four months. The USGovt
prefers to enforce and sustain its global domination with heavy handed banker
tactics, financial market rigging games, export of crippling acidic debt,
usage of the World Bank and IMF tools, and numerous clever devious nasty
methods in the shadows best not described. Lately, a chief US export has been price inflation, most evident in
food prices, courtesy of the QE2 program by the USFed.
In the last decade, the chief export was toxic debt securities. The Chinese
have a different approach, one that might have been more prevalent in the
United States half a century ago. They have made 180 trade deals across the
world, the exact number exaggerated. They do not place military personnel on
foreign soil. They do not lace foreign banking systems with toxic debt. They
establish multi-faceted contracts that involve the build-out of port
facilities, railroad lines, schools, hospitals, and community living centers.
They ignore ugly government facts of life like what exist in West Africa.
They operate a sophisticated guerrilla economic warfare in sharp contrast to
what the US does. The Chinese build partnerships, not without some friction,
while the Americans ignite violent conflicts and demand that allies take
sides, while extorting bank ruin, living above their means. The source of the
ignition events is kept well under wraps. The ultimate motives
of the Chinese is likewise kept rather quiet.
DOLLAR SWAP WINDOW
The
most important factor to bear upon the financial markets globally in the last
several months, the greatest change agent, in my view, is the creation of the Dollar Swap Windows
by China. They are being erected in Europe. Their focus is on the PIGS nation
sovereign debt. The debt of Greece, then Portugal, finally Spain very
recently, and later inexorably Italy have found and will find a major buyer
in China. They will buy PIGS debt at discount. They will win favor across the
continent. They will gain advantages not well publicly mentioned. They will
cut off geopolitical opposition in extremely subtle manner. They will open up
the pathways for greater technology transfer. They will offer a semblance of
stability to the currency markets in turmoil. They will spread their global
presence, if not dominance. They will work some backdoor deals with motives
to secure large volumes of gold bullion at discount. They will solicit more
cooperation from previously devoted Anglo tools like the Intl Monetary Fund,
and perhaps turn the IMF itself into a Chinese agent. They will possibly pave
the way to a mild colonization movement, perhaps having already chosen
Southern Spain over Southern California. The Mexican Civil War might have
frightened them off any plan to send a million Chinese to North America,
equal in intensity to the realization of rising hostility and trade war with
the USGovt. Somehow friction with Basque
Separatists and detente with Andora versus Spain
seems tame compared to roving gangs of Mexican drug lord lieutenants ready to
dole out violence on US soil, whose battle lines are drawn by tribal history
far more than the US press reports. The systemic failure of Mexico was forecasted
in the Hat Trick Letter in the summer 2007, with timing expected for some
climax events and recognition in mid-2010, a correct forecast. The USGovt has gone from assisting China in economic and
industrial development to blaming them for the depleted US condition. The
bigger problem is obviously the deeply entrenched domestic devotion to asset
bubbles and colossal bank fraud, run in parallel with the absurd destructive
consumption mindset.
HIDDEN EURO IMPACT
So
the Dollar Swap Window has been constructed, with expansion a certainty. The
Chinese will have an opportunity to dump a big batch of USTreasury
Bonds on a regular basis. My full
expectation is that the Chinese will sell far more USTBonds
than they purchase PIGS nation sovereign debt. In other words, they are
building a dumping ground. Key parts of the equation are that the Europeans
have been promised a willing buyer (although with ulterior motive) in the
Chinese for PIGS sovereign debt. The Germans are sick & tired, fed up to
the gills, in supporting the Southern Europe welfare system which identifies
the broken element of the faulty European Union. Its foundation had cracks
from the start, more than the Jackass recognized admittedly in past years.
The Europeans have been promised some important support for the embattled
Euro currency. Every time the Greek crisis made the news in past months, the
Euro currency sold off with gusto. No more! A strong broad plank of support
for the Euro has been provided by China. They are selling their USTBonds and buying EuroBonds
with PIGS brand markers. The Euro currency has risen from a January 10th low
of 129 all the way to almost 137 in this month alone. The rise has occurred
despite the ongoing saga of PIGS debt distress. The Portuguese sovereign debt
has been shored up by Chinese promises of purchase. The Irish Govt debt is a totally different animal. They accepted
and swallowed the lethal IMF poison pill, cut their budget,
and seen enormous deficits spiral out of control as their economy craters.
They have resorted to monetary inflation approaching Weimar style as proof of
the disastrous error in decisions. Translated to US size difference terms,
Ireland has expanded their Euro money supply the equivalent of the US doing
so by $12 trillion, all in the space of three months on the Emerald Isle
centered in Dublin. They are not keeping Dublin tidy!
The
financial news reports fail to mention the China card. They fail to mention
that China is exchanging USTBonds for Euros in
order to purchase EuroBonds with PIGS skin labels.
They fail to mention that large Chinese hands are supporting the Euro
currency. My belief is that the news media does not wish to stress the
expansion of Chinese influence. For a century, or perhaps three centuries,
the cultural and heritage linkage between Europe and the United States has
been firm and solid. A grand Chinese
wedge has been inserted, not so much between Central Europe and Southern
Europe as between Europe and the United States. China will be crucial in
casting the Southern nations aside from the European core. They will become
wards of China, even for exploit. The Dollar Swap Window constructed by China
has actually isolated the USGovt in serious ways.
Relief to PIGS EuroBonds is obvious. The numerous
other effects are not, and those effects are not in the news. They are main
elements of the Hat Trick Gold & Currency Report, and have been for
several months. The expansion to Spain was a forecast made in November and
December, with confirmation coming by denials in Madrid.
Something
unique and unusual has happened in the last three weeks. The Euro currency has risen noticeably from 129 to 137, but the Gold
price has fallen from $1385 to $1335 per ounce. For almost a full decade,
the correlation between the US$ DX index and the Gold price has been in the
minus 70% neighborhood. What has happened in the last month has been a
gigantic outlier. It is not just significant with umpteen standard deviations
above the norm. It is in the wrong direction. My best guess is that the
Chinese have temporarily halted their usage of the COMEX avenue for gold
acquisition. They have permitted the corrupted COMEX to push down the gold
price, using its fraudulent paper mechanisms. They have given free rein for
the Wall Street maestros to lower the gold price for any IMF deal to secure
European gold bullion in exchange for EuroBonds.
Most gold & silver contracts are settled in cash anyway these days, since
the COMEX does not have much precious metal in its possession. Imagine the
day coming before too many months when gold & silver can be traded in
contracts at the COMEX with no gold or silver metal exchanging hands. That
day is coming, along with ruin of the GLD and SLV defaults, ruin, deep
discounts in share price versus the metal price, and investor lawsuits. As
for the Gold & Silver price, they will rise when the Chinese decide to
resume buying. Right now, their attention is diverted to EU gold bought at
deep discount, and in volume. As usual, they are thinking at least 20 years ahead.
The Gold & Silver price will rise soon enough for the patient minded. The
physical market wrests control always, as the mid-term forces take over.
OBTAINING GERMAN TECHNOLOGY
Germany
is grateful that a new benefactor has come to Southern Europe. No longer does
the German Govt feel burdened by the welfare
enforced by the European Union dictum. The Germans are exhausted from $300
billion in annual welfare support of a deadbeat set of children in Portugal,
Italy, Greece, and Spain. Over the last ten years, the drain of German wealth
has been $3 trillion in total. A German banker has kept me up to date on the
details. He frequently mentions that it is not a matter of willingness for
the Germans to continue to support the broken nations of Southern Europe, complete
with their grand deficits and inefficient economies, and greatly different
work ethic, and their preference for song and dance and wine. The Germans are
NOT CAPABLE of the continued drain of $300 billion per year, since the cost
has turned into a nightmare burden.
In
return for the outsized Chinese relief of PIGS debt, the Germans have offered
key exports in technology. The main items are machine tools,
telecommunications, construction equipment, and cars. Germany is the technology
leader in Europe, with no close second competitor. France is a distant
second. The German Economy is not a war economy, as they possess world class
technology for domestic purposes. In the early part of the last 2000 decade,
the technology transfer was significant from Japan to China. It enabled a
great leap for Chinese industry. In many instances, the installed Japanese
technology, like with machine tools and sophisticated manufacturing floor
control systems, the Chinese leapfrogged the US easily. Enter the current
phase, where the Germans are working with the Chinese in major deals. My view
is that the Eastern Alliance, whose participants are Germany, Russia, China,
and the Persian Gulf states, has many components not easily seen. They are
working on the New Nordic Euro currency, complete with a gold component, in
order to establish a replacement for global banking and commerce. It could
become a new global reserve currency, all in time. Expect the alliance to
include commitments for vast Russian resources, vast German technology, vast
Chinese bank reserves, and guarantees of vast Arab oil supply. The Dollar
Swap Window is an important component to the advancement of the Eastern
Alliance, in which the US and UK are not players. They are shut out.
ISOLATE USGOVT IN TRADE WAR
A
significant hidden effect for the Dollar Swap Window has been the
interruption of the trade war alliance encouraged and solicited by the USGovt. Evidence was clear at the most recent G-20
Meeting of finance ministers. The USGovt attempted
to find wider support for hostility against China. They all fell of deaf ears. The American delegation was embarrassed,
isolated, and stunned. With the
Chinese acting as chief debt benefactor in Europe, with the Chinese forging
Asian, Arab, South American alliances, nobody joined the adolescent US
chatter to confront and combat China. The USGovt
is increasingly isolated in its trade war against Beijing. The great trade
war will be bilateral, with perhaps no other allies at
the side of either nation. Witness the battle for global control and
leadership. A great transition is in progress, as the global leader mantle
passes from West to East, from the US hands to Chinese hands. The US is
expert at creating enemies. As the Islamics fade in
perceived threat, enter the Chinese who "stole" the US jobs and
"sit on" vast hoard of money from "ill-gotten trade
surpluses" in great ongoing accumulation. The ugly truth is that 60% to
65% of Chinese trade surplus from 2004 to 2008 was derived from US and
Western corporations having expanded on Chinese soil with factories, fully
endorsed by USGovt and Western Govts,
often with direct support of ministries. The Europeans are courting the
Chinese, and that is big news. China is playing the Europe card at the
geopolitical table. Maybe the numerous NATO military bases will eventually
fly Chinese flags and be converted to commercial supply transport usage.
The
hypocrisy is thick. However, the incessant annoying shallow charges of
currency manipulation ring hollow when the US Federal Reserve announced the
Quantitative Easing #2. They hypocrisy was extra thick, since the USFed had heralded an end to the 0% monetary policy. The
Exit Strategy was followed by monetary inflation, US style, mimicking as best
they could the Weimar program 70 years ago. The hypocrisy was doubly thick
since the first QE round was promised to be the only round. It was followed
by QE2, as forecasted by the Jackass all last year. Expect a QE3 later this
year, to rescue states and muni bonds, but only after government pension
obligations are abandoned and smashed. In the process, the United States has
become isolated. Numerous trade deals exclude the USGovt
and USEconomy. The new perverse grand trade
partners for the United States are war continuation, war expansion, and a
deep embrace of the Printing Pre$$, the monetary inflation machinery. As USTreasury Bond creditors have stepped away, the USFed has entered with powerful demand from printed USDollars, all done electronically, boasted at zero cost.
In my view, the cost is infinite, with broad capital destruction and economic
disintegration.
BACKDOOR GOLD PURCHASE
Word
is gradually leaking out that the Chinese have a powerful ulterior motive to
purchase EuroBonds, not so much out of altruism,
not even so much out of global expansion of influence. THE CHINESE WISH TO CONVERT DISCOUNTED EUROBONDS TO SECURE HUGE
VOLUMES OF EUROPEAN GOLD. The Beijing leaders must for instance have a
plan to convert a fixed percentage of EuroBonds to
gold bullion, even a cut deal with European leaders and bankers, arranged
carefully in advance. They wish to replace the gold bullion possibly swindled
by the USGovt. Any USGovt
gold leases to European nations from past years might be repaid directly to
the Chinese, to close out the lease contracts. The acquisition will NOT be
front page news, will NOT be discussed by European leaders, and will NOT be
publicly debated. The choice for PIGS nations has been and will continue to
be default on sovereign debt or to cut deals with China that buy time. Since
Germany has let it be known that their credit line is cut off, China has
filled the void. But Beijing leaders are crafty. They have very likely
secured deals whereby the IMF harlot will facilitate huge gold bullion sales
to China with the EuroBond securities. The IMF has
run past cover in lease close-outs from the USGovt,
complete with grand deceptions. The key to unmask the lease close-out deals
is that the IMF never identified buyers. There were none often. A sale
without a buyer is an end to a short trade after the passage of years in
time. Without some promised conversion to gold, China would not have cut the
deals. It is the quiet underpin. The common denominator in the great majority
of Chinese deals forged worldwide in the last decade is the secured supply
line of hard assets, like commodities. They also have a preference for port
facilities. Energy supplies, mineral wealth, and foodstuffs are the main
objective of the numerous Chinese trade deals, which increasingly involve
establishment of currency swap facilities and conversion systems. See Brazil
and Russia, which do not bother to use the USDollar
in trade settlement. In the future, look for commodity deals that supply
China with fresh water.
Expect
this trend to increase to the point that eventually the Chinese Yuan (renminbi) is a global currency with full convertibility.
Later, it might serve as global reserve currency. What gives it the edge in
such a role is its rise, compared to the USDollar's
decline. The next decade will see the Redback
(Yuan) more and the Greenback (US$) less in banks worldwide, and in trade
settlement. The extreme wild card in the entire equation is eventually
colonization by the Chinese elite. If they aid in government debt purchase,
then hold title to property, while providing supply lines to a wide range of
consumer products (someday cars too), what would prevent them from sending
100 thousand people per year to occupy abandoned homes and empty apartment
buildings held under proper title? Nothing!
Jim Willie CB
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