23 August 2009
Jim Willie CB,  “the Golden Jackass”

* Repulsive Self-Adulation
* Grand Monetization Exposed
* Bank Failures Preclude Exit Taken
* Deflation Cocktail Invites Inflation
* Verge of Inflation Spillover


Special Report
Issue #65

NON-EXISTENT EXIT STRATEGY

REPULSIVE SELF-ADULATION

$$$ BERNANKE OPTIMISM IS TOTALLY MISPLACED. HE IS THE CLOWN CONGRATULATING CENTRAL BANKERS NOW, INCLUDING HIMSELF. HE DOES NOT REALIZE HE AND THE REST ARE PAINTED INTO A DIRE CORNER. $$$ As preface, bear in mind that USFed Chairman did not foresee any bank crisis or mortgage bond problem before it occurred, nor a housing bubble. He did not recognize the bank credit crisis until long after incorrectly labeling it a 'Subprime Crisis' when he estimated the total bank losses would reach $200 billion. Then he looked into his whisky glass and saw 'Green Shoots' this spring, now a discarded notion. He expected the banking system breakdown would not to extend to the tangible economy, as in no recession. He forecasted a USEconomic recovery in the second half of 2009. HE HAS BEEN CORRECT NOWHERE, but much praise is heaped on him for his gargantuan mammoth flood of liquidity in more created facilities that can be mentioned on a single page. HE IS A HACK BANKER WHO ACCOMMODATES THE SYNDICATE IN DIRECTED MONEY FLOWS, no more and no less. His new role is to congratulate himself and fellow central bankers for saving the world after they wrecked it. He is either in deep denial or utterly incompetent to view the progression. The sight of him heaping self-adulation is extremely repulsive, especially since the banking sector must soon brace for a second wave of the crisis. Outside the same conference hall, other more prestigious bankers were warning that the crisis has not ended.

At the Jackson Hole Banker Symposium sponsored by the Kansas City Fed, Chairman Bernanke tried to avoid blame for a US banking system collapse, and expressed optimism that the USEconomy will grow again soon. How reassuring! He essentially congratulated himself for a job well done. At the annual USFed conference, he admitted no errors, but consumers and businesses still have trouble obtaining loans, he conceded. The banking system has still not returned to normal, he admitted. He expects economic activity in both the United States and around the world to start growing again soon. Despite his positive tone, he cautioned that the recovery is likely to be 'relatively slow at first.' That sounds like the obverse of the handy nutty 'Second Half Recovery' fable. He acknowledged no errors, no misteps, no late awareness, no favored treatment to Wall Street firms, no irresponsible lack of transparency for TARP funds, no erroneous estimates on nationalization costs, no recognition of ongoing 'Black Hole' credit derivative costs, no resistance to USFed independent audits, nothing. Global cooperation in battling the crisis was a goal of the USFed, meaning foreign central banks to match their near 0% official interest rate with an open floodgate of money creation and fiscal spending. The rest of the world remained unconvinced, but was compelled to join the USFed, even though European bankers such as the Bundesbank wanted to let the bank failures run their course. Unfortunately, they had to match monetary policy, since the bond fraud was too deep and the bank losses were too great. Also, the rising Euro currency was harming the EU Economy broadly. This is more evidence of Competing Currency War fallout damage.

Bernanke is a very confused banker, hanging onto his job that is up for reappointment. His speech was a fantasy, an avoidance of reality. He was at the same time engaged in a bit of cheerleading, designed to prevent a consumer lapse of confidence. The people are shaky. His job is probably going to be handed to someone else. His last gasp as USFed Chairman is to rewrite of US financial regulations, and to empower the USFed with even greater powers. At risk is the grant of power to kill any financial firm it sees fit, a power ripe for abuse for killing rivals and enabling the Great Bank Consolidation. Bernanke has called for tighter controls in the governance of insurance conglomerate AIG, an impossible task. He also urges the gradual winding down of globally interconnected US companies, another impossible task. Both calls sound good.

His direct quotes covered many topics in a great flow of rationalization. He defends the syndicate, his master, whose failed firms would have exposed their unspeakable corruption. He said, "Although we have avoided the worst, difficult challenges still lie ahead. We must work together to build on the gains already made to secure a sustained economic recovery. Without these speedy and forceful actions, last October's panic would likely have continued to intensify, more major firms would have failed, and the entire global financial system would have been at serious risk. As severe as the economic impact has been, however, the outcome could have been decidedly worse. The crisis, in turn, sparked a deep global recession, from which we are only now beginning to emerge. [Stronger financial regulation is needed] to ensure that the enormous costs of the past two years will not be borne again." Bernanke is stuck in mud, hamstrung to the hip. The USFed has no Exit Strategy since none is remotely possible, given the incredibly disastrous corner the USFed has painted itself into. The only Exit Strategy available to Bernanke is to exit his post after he is not reappointed at USFed Chairman. All other exits are closed and unavailable. He cannot make any decision to change course, since doing so would either unleash staggering price inflation or kill the housing market altogether.

At the conference, Euro Central Bank President Jean-Claude Trichet said he was a "little bit uneasy [about talk of a return to normalcy.] We have an enormous amount of work to do, and we should be as active as possible." Axel Weber, President of the Bundesbank (German central bank), warned against too much euphoria. He pointed out that German export trade is still under considerable distress, and that no German Economic recovery has ever taken place without a strong lift in their exports. See the Yahoo Finance article (CLICK HERE).

GRAND MONETIZATION EXPOSED

◄$$$ ISOLATION OF US$-BASED BONDS GENERALLY POINTS TO EXTREME MONETIZATION, ITS RECOGNITION BY CREDITORS, AND ABANDONMENT. THE USDOLLAR IS THUS EXTREMELY VULNERABLE ON A FAITH BASIS. $$$

Desperation has resulted in direct debauchery engrained in monetary policy. It is no longer hidden. The United States credit markets are losing their legitimate liquidity and increasingly are turning to the desperate reckless alternative, namely the dreaded MONETIZATION. The Weimar pathway has been taken. Mortgages in the United States must maintain funding from the USFed and USGovt by direct purchase of bond securities, no longer a market action. There are mainly sellers. The corporations in the US must maintain funding from a more desperate means, like in Japan with Samurai Bonds offered in Japanese Yen denomination, growing in popularity. THE US$-BASED BONDS OF ALL TYPES MIGHT SOON RELY ON DIRECT MONETIZATION VERY SOON. The process is well along, with domestic monetization by means of immediate permanent purchase by the USFed of primary dealer USTreasury auction inventory, and with foreign monetization by means of US$ Swap Facility usage by central banks overseas. If not for the USFed buying most of the USTreasurys issued, the long-term interest rates would be rising quickly and with alarm, with fallout damage to the USDollar, amidst failed auctions. The Weimar Territory lies directly ahead!

The dangerous effects of hidden monetization are noticed by another analysts. In an article entitled "Federal Reserve Secretly Buying Treasuries at Auction" by Jeff Nielson (CLICK HERE), he points out that foreign demand is much lower than commonly believed for US$-based securities. Also, the dilution of the US$ from the printing press is certain to result in a much lower US$ exchange rate. Bubbles always break. Not one bubble in the US landscape has been properly identified by the bankers who created them. It is their tacit job to make them. The current bubble is with both the USTreasury Bond and the USDollar. Nielson referenced the same exposure by Martenson that was cited in other HTL August reports, when he wrote the following.

"Even more importantly, the Fed's fraudulent tactics at last week's Treasuries auction reveal that US 'monetization' of its debt is much more extensive than what 'Helicopter' Ben and the rest of the liars are pretending. Martenson's research (and revelation) only cover one week of auction activity for USTreasuries. We have no way of knowing how many tens of billions of dollars of Treasuries have been secretly bought by the Federal Reserve in previous, fraudulent auctions. Apart from the impact on US interest rates (and solvency), Martenson's shocking (or not-so-shocking?) discovery has dire implications for the US dollar, from two perspectives. First, it reveals that demand for US dollar products is much lower than what is pretended by the Obama regime. Secondly, the much greater degree of 'monetizing debt' (i.e. printing money to pay the interest payments on its debt) reveals much greater money printing (i.e. dilution) of the US dollar than what is claimed by the US government. It is elementary economics that when you increase the dilution of anything that the value of each unit must decline. Thus, this adds yet another 'bubble' to the US bubble economy: the US dollar, itself. As with all bubbles, the drop in price will be both painful and rapid when awareness spreads concerning the latest US con-game."

BANK FAILURES PRECLUDE EXIT TAKEN

$$$ THE COLONIAL BANK FAILURE EXPOSES THE F.D.I.C. TOTAL BREAKDOWN IN FUNCTION. EXPECT THAT A FEW HUNDRED SIMILAR BANKS LIMP ALONG AS DEAD ENTITIES, NOT CLOSED PROMPTLY, SINCE THE F.D.I.C. OPERATES FROM A POSITION OF EQUIVALENT BANKRUPTCY. WHILE DENNINGER BEATS THE DRUMS FOR A RESOLUTION TRUST CORP TO CLEAN UP THE CRISIS STREWN MESS, HE MISSES WHY NO NEW R.T.C. HAS BEEN FORMED. ASTONISHING TRILLION DOLLAR FRAUD IS THE REASON WHY NOT. MORE BANK FAILURES, RESCUES, AND CLEAN-UPS MAKE AN EXIT STRATEGY A DISTANT PROPOSITION. $$$

Karl Denninger does outstanding investigative financial analytic work. He raises great questions on why Colonial was permitted to go so deep into the hole, with large blocks of their portfolio set to take 21% writedowns (home equity loans), or 30% writedowns (commercial loans), or even 67% writedowns (construction loans). The facts and figures are out there for all to see. The Colonial losses greatly eclipse their bank capitalization and equity, by a huge margin, exposing FDIC inaction and incompetence. So why was Colonial not shut down several months ago?? According to the FDIC, Colonial did not even have a negative Tier Capital Ratio, unlike other midsized banks such as Guaranty and Corus. The carnage will be beyond belief, utterly shocking. Clearly the FDIC is sitting on its hands, with a very different perspective or mission. Maybe they are waiting for a miracle housing and mortgage finance recovery, like naive moronic children. Maybe, as my accusations have cited since last autumn a year ago, they work as investment banker harlot (painted whore) for Wall Street, seeking to line up other banks for seizure mergers. Kill the bad assets and grab the good assets, in a federally sponsored raid. Precedents abound. Maybe their real mission is to permit the midsized banks to suffer a quantum of loss, enough to force the situation to breakdown and then enable Wall Street banks to merge with them by USGovt force. By not taking prompt action, the FDIC has ensured much greater FDIC loss later when their action is far more urgent. The US banking system is entering a crater under the FDIC inaction.

The FDIC no longer serves it function. It acts on bank shutdowns only when it must, when losses have gone deeply into the red. Imagine the few hundred or several hundred other Colonials out there, dead but open for business, hardly lending much to people or businesses, steadily incurring greater losses with the passage of time, avoiding asset liquidations. This is the backdrop for a claimed housing recovery!?! The FDIC cannot afford to do its job and perform its function. Over 90% of its waking hour energy and thought process is devoted to serving Wall Street banks. Main Street banks are mere meat for feeding. A competent assessment would result in the shutdown of several hundred midsized US banks, and expose the total ruin of the banking system that extends from this decade's mindless chapter of housing inflation, bubble then bust. The reflection on the USTreasurys and USDollar would be painfully felt. The US$ currency would suffer a 30% to 50% loss. Such a loss is inevitable. The FDIC merely wishes to postpone the day.

Denninger cited the inactive Office of Thrift Supervision, Office of Comptroller to the Currency, and the US Federal Reserve as being irresponsible at best and corrupt at worst. He points out how the system is totally strangled from within, and not functioning remotely as designed and required. The entire system is mispriced and thus locked down. He concluded, "What's worse is that the financial and credit intermediation system REFUSES TO CLEAR as a direct consequence of the outrageously high 'claimed' marks compared to reality, making trading of these assets or posting of them as collateral impossible. Credit intermediation CANNOT NORMALIZE until this is STOPPED. If regulators, including OTS, OCC, and The Fed along with the FDIC will not do their jobs then Congress MUST step in and do whatever is necessary, including appointment of special prosecutors empowered to start bringing indictments or appointment of an RTC-II to clean up this mess. This has not been done because the 'industry insiders' claim that it would be 'too disruptive.' … We cannot have a durable economic recovery until these control frauds are stopped, the persons responsible flushed from both management and regulatory roles, and the firms that this renders insolvent are closed. Credit intermediation must be restored to normal functioning, and it cannot happen until and unless the fraud currently being given safe harbor in our financial system is flushed out and eradicated." See the Market Ticker article (CLICK HERE).

Catherine Austin Fitts knows much about mortgage finance and runaway fraud within Fannie Mae, Freddie Mac, and other Govt Sponsored Enterprises. In the past two decades, USGovt sponsorship is synonymous with trillion$ fraud. Fitts describes the actual practices that constitute the 12-digit fraud, and points out how an New RTC would not stand a chance at turning a profit like it did in 1991, and therefore will not be created for a cleanup. An RTC is formed only when it has a viable prospect of becoming a profitable temporary enterprise, as it processes assets like a liquidator does with estate furniture. No liquidator would buy a lovely dining room table if records show three banks have a claim to it. The current situation is left totally lacking, since a gigantic pit of fraud is at work. Fitts commented in a message, "You cannot have an RTC-II. In a Resolution Trust Corp resolution, the files are accessible to third parties and the assets are priced at market. When a building or home has 3 to 10 mortgages, one legitimate and three fraudulent, then an RTC resolution costs more than it can recover and creates significant legal liabilities for the parties engineering the fraud. Since they were financing the black budget, the guys who have the guns would rather just write a big bailout check. Pretty cool Leveraged Buyout Model. Issue phony paper to engineer a takeover. Then write USGovt checks to clean up the phony paper. This is a Financial Coup d'Etat!" The mortgage bond fraud is outrageous and incredibly broadbased. Fitts mentions duplicate mortgage bond collateralization. She did not go into details about outright counterfeit of mortgage bonds by Wall Street and the CIA. Fraud is the biggest reason why Loan Modifications are not executed with gusto and volume. Altered value of mortgage bonds would expose the entire fraud and counterfeit. PROSECUTING TRILLION$ BOND FRAUD WOULD INDEED BE DISRUPTIVE, as bankers are well aware. The Black Bag Budget is a term to describe crime syndicate funds, such as unapproved CIA projects (like radio propaganda, blackmail of leaders, murder sprees) and narcotics operations, or highly unethical projects like the Plunge Protection Team to push up stocks on Wall Street.

$$$ A WAVE OF BANK FAILURES COULD PRECIPITATE THE US BANK HOLIDAY EVENT. $$$ BobO in Kansas is a sharp subscriber. He links the wave of bank shutdowns to a potential US Bank Holiday, a systemic shutdown for an indeterminate period of time. He said, "If the Colonial markdowns are realistic, and they probably are, and if other banks are lined up for similar losses, and they probably are, this on top of the losses that they are already hiding off-books with 'mark to model,' then closing banks regionally, under the premise of performing 'New Stress Tests' would be a good excuse for the rolling bank holiday you were predicting." He anticipates the USGovt would claim in his words, "We just do not have enough trained people to do it right, everywhere, at once."

LATE NOTE: Guaranty Bank of Texas just shut down, at an additional $3 billion cost to the FDIC fund, larger than the Colonial loss. The midsized banks are dropping like flies in the raging summer heat of Texas. The total this calendar year is now 81 failed banks, the highest number in a year since 1992. This year is not over. The total in year 2008 was only 25 bank failures.

DEFLATION COCKTAIL MOTIVATES INFLATION

$$$ A DEFLATION COCKTAIL BACKFIRE IS IN THE WORKS. THE PREOCCUPATION WITH FALLING PRICES OF PRODUCTS AND ASSETS HAS DISTRACTED ATTENTION FROM THE COLOSSAL MONETARY INFLATION AND CREDIT CREATION IN USTREASURY DEBT. A DECLINING MONEY VELOCITY AGAIN IGNORES THE BANK SECTOR. PREPARE FOR PRICE INFLATION. $$$

A wonderful display of charts can be seen on falling prices and flagging USEconomic activity. To be sure, price structures are in an important decline. Even industrial production output is in decline as seen in the graphic, for the worst swoon in a full generation.

Money velocity is falling, but it too ignores the hidden (but admitted) bank sector activity, with is on massive steroids. The decline is interpreted incorrectly by many to mean an eventual collapse in all prices. Instead, supplier distress is growing that will reduce the entire economic supply chain, and demand for money is falling. The result will be an unexpected rise in price inflation to catch many off guard. The central bank and USGovt responses have been and will continue to be money printing, debt issuance, and running federal deficits. Even Warren Buffet acknowledges a tremendous amount of monetary medicine that has yet to work through the US systems. Since its volume is so magnificent, do not anticipate the typical outcomes and factors to play out in well predicted fashion.

Nothing conventional will follow as in the past. A very astute contact from the banking world sent a conclusion laced with imagery. He said, "I am not certain that there is deflation in the conventional way. It looks to me like stagflation with a hyperinflation tsunami already in sight on the horizon. This is a very powerful and lethal cocktail that has been brewed by the BOYZ. The comical aspect is that they will have to drink this cocktail all by themselves." One should expect a spillover of the excess bank reserves to combine with a foreign creditor revolt, all during a USDollar devaluation. What we see is a monumental clash between a deteriorating USEconomy with badly sagging industrial output and badly stalled money velocity in the tangible economy (apart from finance sector) facing a torrent of funds stacked in the US Federal Reserve, but owned by the banks. The clash almost ALWAYS results in the money flowing over the barriers, unless they wish for an economic collapse. The rise in excess bank reserves is shown, that seeks a spillover. See the Economic Edge display of charts (CLICK HERE).

VERGE OF INFLATION SPILLOVER

$$$ JOHN WILLIAMS PROVIDES A THEORY ON THE PATH TO HYPER-INFLATION FROM FALLING DEMAND FOR MONEY. $$$ Nothing laid out by teachings from the VonMises Austrian School of Economics has failed to occur. The Shadow Govt Statistics is a tremendous source of unbiased data and frontline analysis of that data. Their work describes in detail how the USGovt falsifies official economic data releases with statistical gimmickery. Williams believes that the VonMises pathogenesis is currently approaching Phase II. Monetary inflation must accelerate to sustain growing bubbles. Monetary inflation must also accelerate to prevent the systemic collapse after the bubbles break. The next phase is likely to feature falling demand for credit, when money supply grows in a continued hectic pace. So prices will rise from too much money chasing too few products in demand. Note the mention of Phase III, on how a currency actually collapses when money supply cannot keep pace. Interruptions to accelerated money supply might be easy, from political obstacles or basic human misjudment.

Doug French of the VonMises Insitute wrote, "So instead of allowing the market to provide a healthy cleansing deflation, the Fed, the Treasury, and bank regulators are fighting valiantly to keep the fractional reserve bubble machine operating, with the ultimate result likely to be inflation and possibly hyper-inflation. 'As inflationary pressures mount anew and the financial markets increasingly shun US Treasuries,' wrote John Williams on his Shadow Government Statistics website this past January, 'an inflationary depression can evolve quickly into a hyper-inflationary Great Depression. Although hyper-inflation became inevitable in the last decade, the onset of the process just recently was triggered by Fed and the Treasury actions in addressing the systemic solvency crisis.' What Williams describes is Phase Two of Mises's inflation outline: instead of a rising demand for money moderating price increases, a falling demand for money will instead intensify price inflation. Finally, we come to Phase Three, where prices go up faster than money supply, the demand for money drops to zero, and government fiat currencies collapse." See the VonMises article (CLICK HERE).

$$$ FOLLOW A PICTORIAL SEQUENCE THAT TELLS THE STORY FOR POWERFUL POLITICAL PRESSURE TO INFLATE. THE CALL TO PRODUCE PRICE INFLATION WILL BECOME A LOUD SCREAM SOON. PRESSURE IS RELENTLESS TO TURN ON THE INFLATION SPIGOT FULL BLAST. THE PROCESS IS WELL ALONG WITHOUT MUCH FURTHER PUSH. $$$

Current structures surely show price declines for end products. See the dramatic decline in import prices and export prices. That does not address the cost structure, led by energy, and many other items linked to US$ price structures. The declines in the graphic are the consequence of the great bust in the bank sector and housing, which brought down the system. The USGovt and USFed response to produce price inflation much more vigorously is their next job. They excel at such tasks. Apparent stability precedes hyper-inflation, as floodgates are gradually opened over time, actively or passively.

The steep decline in USGovt federal revenues from taxes is one of the best aggregate concurrent indicators of the wreckage nationally. Recovery cannot occur with gains in tax revenues, since directly related to income sources. The pain should continue since the few trillion$ in rescues, aid, nationalizations, and stimulus is 95% vanished before it reached the people's hands. The USGovt and USFed response will soon be stipulated to contain a motive to produce income for households and businesses. They will instead produce massive inflation, since that is the only task that they excel in.

Utter disasters are unfolding at the state and local levels. The federal USGovt has devoted 95% of its efforts to stuff money into the hands and pockets of big bankers, while largely ignoring the states. Ever since the syndicate took control of the USGovt, probably in the mid-1990 decade, the people have become an annoyance to the syndicate. Wall Street and the Pentagon are the primary priorities. In time, the people will complain and show enough anger and make enough noise and garner enough attention, to the point that the states will actually receive significant aid, not just enough to plug some Medicaid holes. The USGovt and USFed response to provide meaningful assistance should eventually arrive, but only after incredible pressure is felt. When that assistance finally arrives, it could result in the spillover of inflation into the USEconomy that most analysts have denied will ever occur. Feel confident that it will occur, since US economist do NOT anticipate it. They are the world's worst economists, mainly because they are frontmen, harlots, and promotional pitchmen rather than economists by job descriptions.

Thanks to the following for charts StockCharts, Financial Times, Wall Street Journal, Northern Trust, USFed, CIBC Bank, Merrill Lynch, Shadow Govt Statistics.