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The heralded end
to the Petro-Dollar defacto standard completes the loop, the vicious cycle
that will work to destroy the USDollar. In a sense, the US$
had to face an end, its sunset guaranteed when Nixon defaulted on its
redemption value. The United
States served as custodian for the global
reserve currency. Naturally, the most damage will be to the US
as a consequence of its twilight, especially after the recent era of fraud
& counterfeit. Few look back to that date in 1971 as prophetic for
declaring the USDollar’s days as limited and finite. The
world will continue to trade the US$ in future years, but it must stand on
its own value, based upon its own merit, the result of
balancing its supply & demand, from the integrity of its fundamentals.
Some climax events have come, or at least are previewed on an unfortunate
path. Never in my memory has USGovt leadership been so disrespected. Never
has Wall Street been so culpable for financial ruin, yet still in power
running the USGovt finance ministries. The global revolt against the United
States has many sides, but the financial
aspect is most profound. It is hardly even covered in the US
press. The US
citizens have little comprehension of the enormity of a lost global reserve
currency, with all its privileges, abused for constructing financial
engineering towers and funding foreign wars. The direct effects will be felt
in higher costs and assured supply, including credit.
No need to enter
details, but the nation with each passing year resembles even more a very
large Third World nation. Empty foreclosed
homes, empty shopping malls, millions of jobless, discouraged business
formation, nationalized failed firms, vanishing Middle Class, trillion$
federal deficits, monetized debt, reduced liberties, selective elite law
enforcement, syndicate stronghold, huge prison population, controlled press
networks, distrust of leaders, aggressive military, these are the
characteristics that most people agree are unsavory. But
when one takes them as a cornucopeia table display, they are described as Third
World. This article will be shorter than most,
since the more complete analysis is provided for Hat Trick Letter members. We
are not fooled by the banter, the propaganda. We have been preparing for the
surge in gold & silver, the powerful erosion in the USDollar, the ruin of
the banks, the universal bust in bonds, the insolvency of the homeowners, and
the army of jobless. Personal fortunes have by and large not been ruined.
Some have thrived.
COMPLETED
LOOP: FINANCIAL & COMMERCIAL
The swirling
motion of the above loop is powerful. With the crude oil sales no longer
taking US$ payments, the loop is completed. The financial
engine in the Dollar Carry Trade now will have a commercial engine to further
its momentum, to add power to the cycle, and force powerful lethal feedback
reactions. Only when the financial and commercial sides fit
like two giant interlocking pieces does the power take hold, much like a
toilet assembled. The Fisk report on a 2018 timeframe for the phase out of
US$ petro sales is more politically massaged information. The timetable will
be just a couple years, doubtful more. The reactions from systems will force
the timing to be much sooner, out of desire, out of necessity, due to broken
systems that accelerate the breakdown process due to the announcement itself
in feedback loops. By the way, the swirling motion in the vicious loop should
remind people of a toilet being flushed. In the Northern Hemisphere, the
motion is clockwise. Thus my representation, since my entire life has been
spent roaming the north. To people reading from the Southern Hemisphere,
imagine the elements of the graph in mirror image format. Thanks for the
cooperation.
REDUCED
US$ DEMAND IN FOREIGN BANKS
Entire foreign
banking systems have been constructed with USTreasury Bonds serving as
important assets in their foundations. The requirement was clear by virtue of
payment for crude oil for Saudi and other OPEC nation crude oil. The
Petro-Dollar standard required nations to prepare for payment in US$ terms,
and thus build systems to make those payments. The banks act like giant ATM
machines to dispense USDollars for oil payments. Many did so reluctantly. The
purchase of crude oil is without doubt the largest and most important
economic commodity purchased, next to food supply. The
demand for USDollars will be sharply reduced in the future.
Payment for crude oil in IMF basket terms will reduce the need for holding
all those USTreasurys. Banking systems will change their structural makeup.
They will adapt to other non-US$ swap facilities that aid in trade. One
should be on the lookout for outright refusal to accept USDollars, the next
step. The toxic bonds could easily lead to perception of USTBonds being toxic
as well.
FOREIGN
RESERVES DIVERSIFICATION
Nations have been
struggling to diversify their FOREX reserves for the last few years. They
react to the fundamental problems of the USEconomy, the USGovt deficits, the
US Bank insolvency, the US Home insolvency, the dismissal of US Industry, and
the trend toward nationalization. The foreign
managers of finance suddenly awakened in 2005 to find they had accumulated a
surfeit of bonds in the form of USTBonds, USAgency Mortgage Bonds, and US
Bank Corporate Bonds, with no semblance of balance in their portfolios. Add
to their reserves the Sovereign Wealth Funds, and the magnitude of the
problem was deemed unreasonable, unwise, and unacceptable, in need of change.
So foreign finance accounts have been buying more EuroBonds, even Chinese
Govt Bonds, more Gold, more commodity stockpiles, and more foreign assets
that assure commodity supply. China leads the way in setting the standard in
diversification practices.
USFED
STUCK AT 0%
The USFed does
the most talking about an end to its free money, also known as monetary
easing. But
the United States will be the last to raise interest rates, stuck without an
Exit Strategy. Australia did not talk about it at all, but recently
raised its rates by 25 basis points. Generally speaking, those who do too
much speaking do too little doing. The crippled nature of the conditions in
the United States dictate continued 0% easy money. The powerful players in
the Dollar Carry Trade will ensure that the free money parade does not stop.
It is self-sustaining. They will even influence the USFed not to hike rates.
Furthermore, the next round of bank losses from commercial mortgages and
prime Option ARMortgages will deliver big blows. Some astute analysts are
already estimating the magnitude of the next round of bank losses. Any
hike in interest rates would not only add costs to borrowers across the
USEconomy, but add costs to the USGovt. They are, by the
way, producing trillion$ deficits.
GROWING
USGOVT DEFICITS
The endless
series of stimulus for a moribund USEconomy, reduced payroll taxes collected
as federal revenue, nationalized Black Hole costs (Fannie Mae, AIG, GM),
current health care costs (Medicare), hidden banker welfare (TARP funds one
pearl on a string), sacred military budget (contractor largesse &
syndicate benefit), and stupid pork projects will continue to churn out
gigantic mind-numbing federal deficits. The only reduction seen is in forecasts
by official agencies, which bear little reflection to reality. The
permanence of trillion$ deficits will be clear in another year.
Removed stimulus, removed props, removed monthly special programs, these
steps will cause a return to deteriorated conditions. The Clunker Bank and
Clunker Home programs are well along.
USTBOND
MONETIZATION
The USTreasury
auctions are the biggest congame since the Wall Street mortgage bond sales,
whose monetization eclipses the Weimar machine. The primary bond
dealers are required to bid on USTreasurys that come to auction. They are
reimbursed in Permanent Open Market Operations by the USFed within a week or
so. The US press does not notice or does not report or is told to look the other
way. The foreign central banks turn in their USAgency Mortgage Bond to the
USFed, which with newly printed money buys the USTreasurys offered. These
central banks use the sale proceeds and additional funds drawn from the
Dollar Swap Facility to bid on USTreasurys that come to auction. The US press
does not notice or does not report or is told to look the other way. The
USGovt continually promises the foreign creditors that no monetization of
debt will take place. They lie. The true victims are confidence and trust,
essential to any fiat currency.
LOST
CONFIDENCE IN USDOLLAR
Confidence is
lost, never to return. It takes years to build confidence and trust, but only
a few moments or days to lose it. Actions and developments in the last
several years have contributed to a powerful and deep loss of confidence. In my
view the mortgage bond fraud export combined with the Iraq & Afghan Wars
to shatter respect, trust, and confidence. Nowadays, monetization worsens the
lost faith as a crowning blow. Bully tactics by the US & UK
for years added constant strain, producing resentment. The result is less
support for the USDollar, and almost no cooperation for US$ and USTBond
support programs outside the central bank franchise system.
A
KEY IS THE JAPANESE YEN
As the Yen Carry
Trade enters its final phase in wind-down, the Dollar Carry Trade will
accelerate. Imagine, the global reserve currency in the US$ is
used to fund a carry trade, from a Japanese handoff !!! The
world has been turned upside down in its financial axis. No doubt about it.
We live in a bond-driven world. National finances matter little compared to
the interest rate yield offered to financial speculators, whose efforts are
amplified by leverage. Take the Japanese, for example. Their
trade surplus endured for 30 years. In the last year it vanished. Yet the
Japanese Yen is rising versus the USDollar. The carry trade
is seeing a grand handoff. The Dollar Carry Trade is a bond-driven phenomenon
once again. Its power might be best seen in the Yen currency valuation, in
its surprising rise. The Yen is analyzed in the October Hat Trick Letter
report. The invitation for the USMilitary to depart Okinawa has some effect.
The bond arbitrage has much more. The Japanese finance firms receive little
attention. They are experts at running and exploiting the carry trades. They
are switching programs.
If you believe
all is well in Japan and Tokyo support will continue, then you miss the
‘Lost Lackey Effect’ from the last year. The Saudis will not
carry the US bags any longer. The Arab squires will carry bags with Kremlin
markings. The Japanese will not carry the US bags any longer. The Toyko
squires will carry bags with Beijing markings. The chief strategist at a
major Japanese bank Sumitomo today warned that the US$ might fall to 50 yen
this year. That would be a 45% decline. Daisuke Uno at Sumitomo expects the
USEconomy to suffer a second sudden recession. He said, “The US
economy will deteriorate into 2011 as the effects of excess consumption and
the financial bubble linger. The dollar’s fall will not stop until
there is change to the global currency system.” The strong warnings
reflect the growing rift between Japan and the USA. The outcome of recent
elections in Japan changed the entire bilateral landscape. The pro-American
LDP party was ousted, a major new piece to the ongoing Paradigm Shift.
JUST THE
BEGINNING FOR GOLD & SILVER
Gold reached 1060
this week, and silver touched 18. This is just the beginning. The pullbacks
like today should be exploited to purchase more at discount. Purchases of
gold at the London exchanges are being interfered with, due to basic problems
of not having sufficient gold bullion to satisfy delivery demand, otherwise
known as DEFAULT. Reports arrived privately cite the LBMA
officials offering 25% more than contract value if high volume gold futures
contracts are settled in cash. Two different
central banks are scrambling to locate gold for the contracts, but much of it
is substandard bullion with under 90% purity. Sounds like a default is right
around the corner, and some members have their nether stones caught in a
vise. CLEAR
EVIDENCE SCREAMS OF GOLD HAVING A $1300 CURRENT PRICE.
- The next
target for gold is 1130, with a midterm target of 1300.
- The next target
for silver is 19 with a midterm target of 26.
The Bank of
England news today was comical. The central bank is the most disrespected on
the planet, for inconsistency, wavering, desperation, and cluelessness. Their
table pounding in desperate confusion caused a big 200-pt rally in the Pound
Sterling versus the Euro. The chief loser currencies in the current phase
will be the USDollar and British Pound Sterling. They are both used toilet
paper, long spent in wiping an empire’s dirt.
See
the King World News series on ‘Systemic Failure’ in its four
parts (CLICK HERE), where the Jackass is interviewed in a
logical comprehensive argument. The fourth and final segment is to be posted
before this weekend of October 17th. The King World News has had a stream of
stellar guests from the highest tiers, that recently included Jim Sinclair,
Gerald Celente, and Chris Whalen. See their front page for numerous
interviews (CLICK HERE).
THE HAT TRICK
LETTER PROFITS IN THE CURRENT CRISIS.
Jim Willie CB
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