Wednesday, March 31, 2010

Past Significant News

Past Significant News
publication date: Mar 28, 2010
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Rape trial against former CIA station chief in Algiers set for June. Edward Warren was rising star in CIA but he is now charged with rape of two Algerian women and possession of child porn. So what makes this unusual for the CIA, again?

Icelandic volcano delays deployment of NJ National Guard troops to Iran theater of operatons. Personnel were heading the "southwest Asia."

SEC officials were viewing kiddie and tranny porn sites while Wall Street collapsed. Now what could be more important to Wall Street regulators than scatmen.com?

United Kingdom. Passports, schmassports: All is well between Zionist British Foreign Secretary David Miliband and Israeli ambassador in London, the cabal is intact. The Independent (UK), Mar 2, 10 -- "Despite ongoing controversy over Israel's alleged role in the killing of a Hamas commander, we hear that David Miliband . . . is to attend a housewarming reception at the recently refurbished Israeli embassy at the end of the month. What's more, in something of a turn-up for the books, the Foreign Secretary is to be joint guest of honour at the event, along with the Chief Rabbi, Lord Sacks." URL n/a.

Microsoft conspires with Network Solutions to take down Cryptome. Cryptome posted Microsoft's Global Criminal Compliance Handbook the describes how the mop-headed Bill Gates helps police and intelligence agencies around the world to violate personal privacy. What Microsoft in Redmond, Washington needs is one massive hack attack to teach these fascist nerds a lesson they won't soon forget. Screw Microsoft and their smarmy lawyers -- click for the cyber-fascist firm's Global Criminal Compliance Handbook.

Scientology cult hires "journalists" to investigate real investigative journalists. St. Petersburg Times target of Scientologists who used a former Investigative Reporters and Editors (IRE) official in their attack on the Times. WMR editor omce caught IRE removing a database that contained an entry about the sale of television equipment by the U.S. government to individuals in Taliban/"Al Qaeda"-controlled Afghanistan and only restored it after hell was raised.

Poland admits role in CIA black site and rendition program. WMR broke the story about the Szymany airfield. On Novemner 11, 2005, WMR identified black sites as: Taszar airbase in south-central Hungary, near the town of Pecs; Lv'iv, Ukraine; Szczynto-Szymany, Poland; Skopje, Macedonia; Mihail Kogalniceanu airbase in Romania; Tbilisi, Republic of Georgia; Shkoder, Albania; Burgas, Bulgaria; and the Markuleshti air base in Moldova.

Warp drive engines seen as possible. There is only one thing wrong with the concept. Hopefully, when warp drive is perfected there will no longer be a United States of America or NATO, which would act more like the Borg in the galaxy than the United Federation of Planets with its "Prime Directive" of non-interference in the affairs of other inhabited planets.

Iraqi Christians (Aramaeans) being ethnically cleansed from Iraq. Aramaeans cite WMR article that Israelis and Iraqi-born Israeli Jews are behind cleansing. Some Zionists websites criticized the WMR piece but the Aramaeans are supporting. WMR will believe the Aramaeans over the lying and obnoxious Israelis any day.

Homeland Security's National Operations Center monitors Wired, Cryptome, and Wikileaks. WMR has been told by a DHS insider that the department's "fusion centers" also regularly monitor WMR.

Dominican legal adviser to U.S. missionaries involved in spiriting Haitian children out of Haiti is member of Dominican Republic Jewish community and hails from New York. Jorge Puello is U.S. Army veteran and is wanted for child sex trafficking in El Salvador. If ever anyone needed to be waterboarded to find out who his masters are, it is Puello.

ASIO intimidates activists. The West Australian, Feb. 9. "ASIO agents have been intimidating environmental activists for their role in protest actions around WA, a Greens senator has claimed. Scott Ludlam says he has been told of two recent incidents in the State in which environmental protestors were pulled aside by agents from the domestic security agency for what was termed an 'unofficial chat' about their activities . .. ASIO director-general of Security David Irvine told the committee he had searched the organisation's records and could find no evidence that either episode had taken place" URL n/a.

Rep. John Murtha dies after gall bladder surgery at Bethesda Naval Hospital. Rep. Norm Dicks (D-WA), owned and operated by Boeing, in line to succeed Murtha as Defense Appropriations subcommittee chair just as Boeing and Airbus/Northrop Grumman recompetes for lucrative Air Force tanker project. Bethesda doctors hit Murtha's intestines in surgery -- has the Navy outsourced any Bethesda operations to Boeing? Just askin'

Business as usual on America's whorehouse and sweatshop island. Another corrupt US judge, Alex Munson, quashes hearing on a woman on Saipan being released from prison to give Northern Marianas Governor Benigno Fitial a massage. Fitial is a crony of jailed GOP lobbyist Jack Abramoff and former House Majority Leader Tom DeLay. Munson was nominated by Bill Clinton.
Alabama Senator Richard Shelby drops hold on Obama nominees. Shelby makes move after he wanted to get White House attention on Air Force refueling tanker recompete contract proposal. Shelby favors Airbus/Northrop Grumman over Boeing because he and corrupt US judge Mark Fuller have vested interests in a potential sub-contractor, Doss Aviation.

Ergenekon investigation in Turkey now involves U.S. embassy in Ankara and U.S. Consulate General in Istanbul. Ergenekon "deep state" conspiracy linked to United States.

American jailed in Cuba for espionage was working with Cuban Jewish groups. Alan P. Gross worked for Development Alternatives Inc. of Bethesda. As usual, Washington Post comes to the defense of one of its own.



Organ and child trafficking taking place in Haiti, according to Haitian Prime Minister. Organ trafficking? Where have we heard about global organ trafficking before? And who sent medical teams to Haiti?

NFL trademarks fleur-de-lis. The fleur-de-lis is the national symbol of France and the symbol of Quebec and New Orleans. Note to NFL: go ahead and sue. It is common knowledge that most NFL games are fixed for maximum television audiences and maximum advertising revenues for beer companies and erectile dysfunction pill manufacturers and because of the heavy dose of legal and illegal betting on games. Professional football is about as competitive as professional wrestling.

Not from "The Onion": Osama Bin Laden gets a State Department makeover. Gone are the beard and turban from "Most Wanted" photo. Has anyone seen Paul Wolfowitz lately?

But wait, wait! The "Bin Laden" photo is not really him, its an anti-war Spanish politician. Neocons are still running the State Department and the FBI is still incompetent -- they used a photo of Spanish Communist MP Gaspar Llamazares. Spanish United Left party says it does not believe in coincidences -- neither does WMR. Heckuva job, Hillary and Mueller!

Desperate Gazans collect aid for Haiti. Unlike Haiti, Gaza's desperation and destruction is Made in Israel. Made-over Bin Laden on Most Wanted list (left). Has anyone seen Paul Wolfowitz (right) lately?

Israelis intimidate Turkish ambassador over TV show. The U.S., Turkey's NATO ally, fails to respond to provocation from Zionist regime.

"Catcher in the Rye" author J.D. Salinger dead at 91. Assasins and would-be assassins were great fans of ex-OSS officer Salinger's book about the fictional troubled Holden Caulfield: Mark David Chapman (John Lennon assassin); John Hinckley, Jr. (would-be assassin of Ronald Reagan); Arthur Bremer (would-be assassin of George Wallace); and Oklahoma City Federal Building bomber Timothy McVeigh. There are rumors that Lee Harvey Oswald, purported assassin of John F. Kennedy, also had a copy of "Catcher in the Rye."

Exiled Haitian President Jean-Bertrand Aristide offers to return to Haiti to help rebuild. U.S. troops are in Haiti, in part, to prevent exactly that.

Ugandan anti-gay politician to attend National Prayer Breakfast in Washington. And who will also be at the annual Christian "The Family/Fellowship Foundation" conclave? Well, none other than "Mr. Change" himself, "Barky" Obama. Ugandan David Bahati wants to kill the gays. How very Christian.

Armed "hunters" put Pantex nuclear weapons plant into security lockdown. Something may be "stinky" with this story. Pantex has had a series of security problems linked to Israel as previously reported by WMR.

Soros's de facto colony, Georgia, sends special forces personnel disguised as election observers to manipulate Ukrainian election. Donetsk officials say Georgians sent to assist candidate Yulia Tymoshenko.

Georgian special forces personnel tried to rip seals off ballot boxes in Ukraine. Georgians refuse to talk to Ukrainian police.

Ukraine identifies Georgian special forces who were sent to disrupt presidential election. These agents should be on every international watch list: Sergei Bigiashvili, Giorgy Kalandarishvili, Zurab Makirishvili, Zama Vashadze, Zurab Jakhaya, Zviad Tsnobiladze, Chukzar Tsikhilashvili, Irakly Gogiya, Bakur Kornilov, and Irakly Andronikashvili.

Orlando Sanford International Airport director Larry Dale threatens to arrest Los Angeles Times and Wall Street Journal reporters returning from Haiti. Here is a picture and bio of Dale, the wanna-be Gestapo agent:

Larry Dale is the director of the Sanford Airport and former mayor of Sanford. He is a certified law enforcement officer and was the assistant fire chief for the voluntary fire department in Lake Mary. Dale also served as Commissioner of the Planning and Zoning Division in Lake Mary (the first one to hold this position), Chairman of the Board of Trustees of Seminole Community College and Chairman of the Seminole County Board Authority. Other boards on which he has served include the executive committee for the Republican Party in Seminole County, President of the Private Business Association of Seminole (PBAS), member of the Central Florida council of the Boys Scouts of America (hmmm...) and is an active member of the Baptist church in Sanford.

CIA contractor flying drone over Haiti. Evergreen International Aviation. Mercenary firms anxious to enter Haiti to deal with "troublemakers." Read that as white racists are anxious to start using desperate blacks for target practice. Change, Mr. Obama? Not from Barky the trained seal.

SecDef Gates bans combat uniforms among his aides. Ban on camouflage and flight suits may spread to other Pentagon activities. It is about time -- someone in Gates's office may have been reading WMR.

FBI illegally grabbed phone records for 7 years. FBI violated Electronic Communications Privacy Act in obtaining records by fabricating terrorism emergencies.

Israeli government nixes permits for NGO workers in West Bank. Oxfam, Save the Children, Doctors Without Borders, Terre des Hommes, Handicap International and the Religious Society of Friends all banned from working in West Bank. Just another Zionist outrage that will go unreported by the usual suspects in the U.S. corporate media.

Another army plot discovered in Turkey. Balyoz (Sledgehammer) Security Operation Plan directed against Erdogan AKP government. Israeli hostility to Turkish Islamist government may be behind coup plots -- a number of Turkish military officers are reportedly close to Israeli intelligence.

Iranian paper Javan, 17 January: Mossad killing Middle East nuclear scientists. "Killing of Ali-Mohammadi, a basic atom researcher of Iran, has a special meaning for countries that have the background in attempts against the lives of their elite. The background of physical elimination of key scientists by Israelis has a history of several decades . . . There have been rumours about involvement of Mossad in killing of Ardeshir Hasanpour, the prominent scientist of Iran's nuclear program in 2007 . . . Sa'ed Badir, Egypt's nuclear scientist in the field of missile technology. . . was found in 1988 in his house and his hand was cut from the wrist. He had just returned from a trip to Germany. His wife termed Mossad directly responsible for the death of her husband. Samir Najib was another scientist who was killed in 1967 in Detroit, US in an accident with a truck. But one of the most important persons who were killed by Mossad is Yahya al-Mashu, who was responsible for Iraq's nuclear program during Saddam Hosayn's government. His body was found in 1980 in a hotel in Paris . . . Some Iraqi nuclear scientists have announced it to Islam-Online through emails and said that the American occupying forces have been threatening them. Haddi Amash is one of those scientists who have been threatened by the US. URL n/a.

Lord Hutton clamps 70-year gag on Dr. David Kelly death. Yet another indication that Kelly was assassinated and Cheney's death squads are prime suspects. WMR reported on Kelly's assassination in Aug. 2006.

Dutch report says there was no legal basis for Iraq War. Prime Minister Jan-Peter Balkenende, another neocon usurper, joined Bush's Coalition of the Willing. At least The Hague international war crimes court is not far for him -- a simple tram ride away.

Council of Europe health chief says pharmaceutical firms are behind man-made H1N1 pandemic. Wolfgang Wodard says H1N1 vaccine in dangerous and contains cancer cells. WMR was first out of the box on the scoop that H1N1 is a man-made virus involving a criminal conspiracy by the U.S. military and pharmaceutical researchers based at the University of Wisconsin-Madison and the National Microbiology Laboratory in Winnipeg.

American Blackwater terrorists accused of being behind Ashura blast in Karachi. "Al Qaeda" is not the name for religious terrorists -- the name is Blackwater/Xe. "Rally taken out against Karachi carnage -- A protest rally was taken out by Jamaat-e-Islami Jacobabad against the recent Karachi carnage on Friday. The rally was led by the Provincial Amir of JI, Asadullah Bhutto and Abdul Hafiz Bajarani, while a large number of JI activists participated in it. The rally participants marched through various roads and staged sit-in in front of the local press club, suspending vehicular traffic for several hours. Addressing the rally, the JI leaders said that Blackwater is allegedly involved in the Karachi Ashura blast and arson. They accused the US of hatching conspiracies for getting control over Karachi and the economic lifeline of the country. They appealed to the Supreme Court to take notice of the incidents."

Video shows executions of Tamils by Sri Lankan forces. UN official says video is prima facie evidence of war crimes. Why an investigation will be stopped: WMR reported that Israel gave counter-insurgency support to Sri Lanka in its war against Tamils and Jaffna strip was designed as "Gaza Strip II."

Haaretz reports what WMR previously reported: Israeli firm allowed underwear bomber on plane in Amsterdam. ICTS and subsidiaries I-SEC and Pro-Check International are under fire. WMR, Dec. 26, 2009: "For a number of years, passengers at Schiphol flying to the United States have been subjected to intense grilling by security personnel linked to an Israeli firm."

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The Federal Reserve going to be Audited: Fasten your seat belts!

Subject: The Federal Reserve going to be Audited: Fasten your seat belts!

"A significant majority in Congress has also signed on to a wildly popular proposal by Representative Ron Paul to “Audit the Fed.” And though the effort is encountering fierce resistance from the central bank, it already passed as an amendment in the House of Representatives. It also has support from over three-fourths of Americans, according to polls."

Rest of the story below:

Subject: The Federal Reserve going to be Audited: Fasten your seat belts!

Written by Alex Newman
Sunday, 21 March 2010 00:00

FedThe Federal Reserve lost an appeal March 19 in a bid to keep hidden the details of its estimated $2 trillion in bailouts to bankers around the world, prompting celebration among anti-Fed campaigners and promises of a continued fight from the banking cartel.

A lower court ruled in August last year that the central bank must release the information under a Freedom of Information Act request filed by the Bloomberg media empire. But the Fed refused. Bloomberg had argued that the public had a right to know what was going on since U.S. taxpayers were “involuntary investors.”

“When an unprecedented amount of taxpayer dollars were lent to financial institutions in unprecedented ways and the Federal Reserve refused to make public any of the details of its extraordinary lending, Bloomberg News asked the court why U.S. citizens don’t have the right to know,” said Bloomberg editor-in-chief Mathew Winkler after the lower court’s ruling. “We’re gratified the court is defending the public’s right to know what is being done in the public interest.”

But the Fed fought back, demanding a stay of the lower-court order until an appeals court could take up the case. It argued that disclosing the documents could “damage” the rescued firms and that a FOIA exemption for “trade secrets” was applicable to the bailouts.

In a supplementary brief filed by the Fed Board of Governors, the cartel also argued that since the New York Federal Reserve Board was basically a private institution, it was not obligated to comply with FOIA requests. “The FRBNY is not an establishment of the executive branch because it is a corporation whose stock is privately held,” explained the brief, also noting that it “is overseen by a board of directors the majority of whom are privately appointed” and that “none of the stock of the FRBNY is government-owned.”

A group of banks including Bank of America, Citigroup, Deutsche Bank, and JPMorgan Chase also joined the Fed in battle through the Clearing House Association. None of the banks offered comments when requested by Bloomberg.

After losing again on appeal in the U.S. Court of Appeals for the Second Circuit, a Fed spokesman said the cartel was reviewing the decision and considering its options for reconsideration or yet another appeal. Some analysts have suggested that the central bank could be preparing to take the case all the way to the Supreme Court to maintain its secrets — and considering the fact that it has virtually unlimited financial resources, it does not have anything to lose by doing so.

But legislators have become increasingly frustrated with the Fed. “This money does not belong to the Federal Reserve. It belongs to the American people, and the American people have a right to know where more than $2 trillion of their money has gone,” said Senator Bernie Sanders of Vermont in a statement, adding that the appeals court’s decision was a “major victory” for American taxpayers.

A significant majority in Congress has also signed on to a wildly popular proposal by Representative Ron Paul to “Audit the Fed.” And though the effort is encountering fierce resistance from the central bank, it already passed as an amendment in the House of Representatives. It also has support from over three-fourths of Americans, according to polls.

Lawyers in the FOIA appeal litigation against the Fed cheered the March 19 ruling. “We’re obviously pleased with the court’s decision, which is an important affirmation of the public’s right to know what its government is up to,” said Thomas Golden, an attorney for Bloomberg. “Bloomberg has been trying for almost two years to break down a brick wall of secrecy in order to vindicate the public’s right to learn basic information,” he wrote in a court filing.

Various media organizations also celebrated the court ruling, including Fox News, which unsuccessfully sought Fed documents in another case. The executive director of the Reporters Committee for Freedom of the Press told Bloomberg: “It’s gratifying that the court recognizes the considerable interest in knowing what is being done with our tax dollars.”

Mark Pittman, the Bloomberg reporter who originally inspired the suit against the Fed, died late last year at 52. But his legacy lives on. As reported previously by The New American, the Fed has been waging an aggressive propaganda campaign to maintain its secrecy and power. But thanks to the tireless efforts of people like Pittman and Congressman Ron Paul, the days of Fed secrecy, bailouts, and unconstitutional monetary tyranny may soon be coming to an end.

The central bank simply must be held accountable. The amount of influence it wields over the American economy cannot be overstated. And the fact that it carries on its operations in secret is deeply unsettling. Congress should exercise its authority and find out what has been going on behind closed doors all these years, followed by completely abolishing the institution and restoring lawful, sound money. Using the American people’s resources in an illegitimate attempt to hold onto power and maintain secrecy is simply unacceptable. It must end. The Fed has no right no influence policy using the American people’s money. But fortunately, with public and congressional ire increasing every day, the time has never been better to bring down the monetary monster once and for all.

China: Crunch Time

from STRATFOR

China: Crunch Time
March 30, 2010 | 0856 GMT


China: Crunch Time

By Peter Zeihan
Related Link

* Germany: Mitteleuropa Redux

The global system is undergoing profound change. Three powers — Germany, China and Iran — face challenges forcing them to refashion the way they interact with their regions and the world. We are exploring each of these three states in detail in three geopolitical weeklies, highlighting how STRATFOR’s assessments of these states are evolving. First we examined Germany. We now examine China.

U.S.-Chinese relations have become tenser in recent months, with the United States threatening to impose tariffs unless China agrees to revalue its currency and, ideally, allow it to become convertible like the yen or euro. China now follows Japan and Germany as one of the three major economies after the United States. Unlike the other two, it controls its currency’s value, allowing it to decrease the price of its exports and giving it an advantage not only over other exporters to the United States but also over domestic American manufacturers. The same is true in other regions that receive Chinese exports, such as Europe.

What Washington considered tolerable in a small developing economy is intolerable in one of the top five economies. The demand that Beijing raise the value of the yuan, however, poses dramatic challenges for the Chinese, as the ability to control their currency helps drive their exports. The issue is why China insists on controlling its currency, something embedded in the nature of the Chinese economy. A collision with the United States now seems inevitable. It is therefore important to understand the forces driving China, and it is time for STRATFOR to review its analysis of China.
An Inherently Unstable Economic System

China has had an extraordinary run since 1980. But like Japan and Southeast Asia before it, dramatic growth rates cannot maintain themselves in perpetuity. Japan and non-Chinese East Asia didn’t collapse and disappear, but the crises of the 1990s did change the way the region worked. The driving force behind both the 1990 Japanese Crisis and the 1997 East Asian Crisis was that the countries involved did not maintain free capital markets. Those states managed capital to keep costs artificially low, giving them tremendous advantages over countries where capital was rationally priced. Of course, one cannot maintain irrational capital prices in perpetuity (as the United States is learning after its financial crisis); doing so eventually catches up. And this is what is happening in China now.

STRATFOR thus sees the Chinese economic system as inherently unstable. The primary reason why China’s growth has been so impressive is that throughout the period of economic liberalization that has led to rising incomes, the Chinese government has maintained near-total savings capture of its households and businesses. It funnels these massive deposits via state-run banks to state-linked firms at below-market rates. It’s amazing the growth rate a country can achieve and the number of citizens it can employ with a vast supply of 0 percent, relatively consequence-free loans provided from the savings of nearly a billion workers.

It’s also amazing how unprofitable such a country can be. The Chinese system, like the Japanese system before it, works on bulk, churn, maximum employment and market share. The U.S. system of attempting to maximize return on investment through efficiency and profit stands in contrast. The American result is sufficient economic stability to be able to suffer through recessions and emerge stronger. The Chinese result is social stability that wobbles precipitously when exposed to economic hardship. The Chinese people rebel when work is not available and conditions reach extremes. It must be remembered that of China’s 1.3 billion people, more than 600 million urban citizens live on an average of about $7 a day, while 700 million rural people live on an average of $2 a day, and that is according to Beijing’s own well-scrubbed statistics.

Moreover, the Chinese system breeds a flock of other unintended side effects.

There is, of course, the issue of inefficient capital use: When you have an unlimited number of no-consequence loans, you tend to invest in a lot of no-consequence projects for political reasons or just to speculate. In addition to the overall inefficiency of the Chinese system, another result is a large number of property bubbles. Yes, China is a country with a massive need for housing for its citizens, but even so, local governments and property developers collude to build luxury dwellings instead of anything more affordable in urban areas. This puts China in the odd position of having both a glut and a shortage in housing, as well as an outright glut in commercial real estate, where vacancy rates are notoriously high.

There is also the issue of regional disparity. Most of this lending occurs in a handful of coastal regions, transforming them into global powerhouses, while most of the interior — and thereby most of the population — lives in abject poverty.

There is also the issue of consumption. Chinese statistics have always been dodgy, but according to Beijing’s own figures, China has a tiny consumer base. This base is not much larger than that of France, a country with roughly one twentieth China’s population and just over half its gross domestic product (GDP). China’s economic system is obviously geared toward exports, not expanding consumer credit.

Which brings us to the issue of dependence. Since China cannot absorb its own goods, it must export them to keep afloat. The strategy only works when there is endless demand for the goods it makes. For the most part, this demand comes from the United States. But the recent global recession cut Chinese exports by nearly one fifth, and there were no buyers elsewhere to pick up the slack. Meanwhile, to boost household consumption China provided subsidies to Chinese citizens who had little need for — and in some cases little ability to use — a number of big-ticket products. The Chinese now openly fear that exports will not make a sustainable return to previous levels until 2012. And that is a lot of production — and consumption — to subsidize in the meantime. Most countries have another word for this: waste.

This waste can be broken down into two main categories. First, the government roughly tripled the amount of cash it normally directs the state banks to lend to sustain economic activity during the recession. The new loans added up to roughly a third of GDP in a single year. Remember, with no-consequence loans, profitability or even selling goods is not an issue; one must merely continue employing people. Even if China boasted the best loan-quality programs in history, a dramatic increase in lending of that scale is sure to generate mountains of loans that will go bad. Second, not everyone taking out those loans even intends to invest prudently: Chinese estimates indicate that about one-fourth of this lending surge was used to play China’s stock and property markets.

It is not that the Chinese are foolish; that is hardly the case. Given their history and geographical constraints, we would be hard-pressed to come up with a better plan were we to be selected as Party general secretary for a day. Beijing is well aware of all these problems and more and is attempting to mitigate the damage and repair the system. For example, it is considering legalizing portions of what it calls the shadow-lending sector. Think of this as a sort of community bank or credit union that services small businesses. In the past, China wanted total savings capture and centralization to better direct economic efforts, but Beijing is realizing that these smaller entities are more efficient lenders — and that over time they may actually employ more people without subsidization.

But the bottom line is that this sort of repair work is experimental and at the margins, and it doesn’t address the core damage that the financial model continuously inflicts. The Chinese fear their economic strategy has taken them about as far as they can go. STRATFOR used to think that these sorts of internal weaknesses would eventually doom the Chinese system as it did the Japanese system (upon which it is modeled). Now, we’re not so sure.

Since its economic opening in 1978, China has taken advantage of a remarkably friendly economic and political environment. In the 1980s, Washington didn’t obsess overmuch about China, given its focus on the “Evil Empire.” In the 1990s, it was easy for China to pass inconspicuously in global markets, as China was still a relatively small player. Moreover, with all the commodities from the former Soviet Union hitting the global market, prices for everything from oil to copper neared historic lows. No one seemed to fight against China’s booming demand for commodities or rising exports. The 2000s looked like they would be more turbulent, and early in the administration of George W. Bush the EP-3 incident landed the Chinese in Washington’s crosshairs, but then the Sept. 11 attacks happened and U.S. efforts were redirected toward the Islamic world.

Believe it or not, the above are coincidental developments. In fact, there is a structural factor in the global economy that has protected the Chinese system for the past 30 years that is a core tenet of U.S. foreign policy: Bretton Woods.
Rethinking Bretton Woods

Bretton Woods is one of the most misunderstood landmarks in modern history. Most think of it as the formation of the World Bank and International Monetary Fund, and the beginning of the dominance of the U.S. dollar in the international system. It is that, but it is much, much more.

In the aftermath of World War II, Germany and Japan had been crushed, and nearly all of Western Europe lay destitute. Bretton Woods at its core was an agreement between the United States and the Western allies that the allies would be able to export at near-duty-free rates to the U.S. market in order to boost their economies. In exchange, the Americans would be granted wide latitude in determining the security and foreign policy stances of the rebuilding states. In essence, the Americans took what they saw as a minor economic hit in exchange for being able to rewrite first regional, and in time global, economic and military rules of engagement. For the Europeans, Bretton Woods provided the stability, financing and security backbone Europe used first to recover, and in time to thrive. For the Americans, it provided the ability to preserve much of the World War II alliance network into the next era in order to compete with the Soviet Union.

The strategy proved so successful with the Western allies that it was quickly extended to World War II foes Germany and Japan, and shortly thereafter to Korea, Taiwan, Singapore and others. Militarily and economically, it became the bedrock of the anti-Soviet containment strategy. The United States began with substantial trade surpluses with all of these states, simply because they had no productive capacity due to the devastation of war. After a generation of favorable trade practices, surpluses turned into deficits, but the net benefits were so favorable to the Americans that the policies were continued despite the increasing economic hits. The alliance continued to hold, and one result (of many) was the eventual economic destruction of the Soviet Union.

Applying this little history lesson to the question at hand, Bretton Woods is the ultimate reason why the Chinese have succeeded economically for the last generation. As part of Bretton Woods, the United States opens its markets, eschewing protectionist policies in general and mercantilist policies in particular. Eventually the United States extended this privilege to China to turn the tables on the Soviet Union. All China has to do is produce — it doesn’t matter how — and it will have a market to sell to.

But this may be changing. Under President Barack Obama, the United States is considering fundamental changes to the Bretton Woods arrangements. Ostensibly, this is to update the global financial system and reduce the chances of future financial crises. But out of what we have seen so far, the National Export Initiative (NEI) the White House is promulgating is much more mercantilist. It espouses doubling U.S. exports in five years, specifically by targeting additional sales to large developing states, with China at the top of the list.

STRATFOR finds that goal overoptimistic, and the NEI is maddeningly vague as to how it will achieve this goal. But this sort of rhetoric has not come out of the White House since pre-World War II days. Since then, international economic policy in Washington has served as a tool of political and military policy; it has not been a beast unto itself. In other words, the shift in tone in U.S. trade policy is itself enough to suggest big changes, beginning with the idea that the United States actually will compete with the rest of the world in exports.

If — and we must emphasize if — there will be force behind this policy shift, the Chinese are in serious trouble. As we noted before, the Chinese financial system is largely based on the Japanese model, and Japan is a wonderful case study for how this could go down. In the 1980s, the United States was unhappy with the level of Japanese imports. Washington found it quite easy to force the Japanese both to appreciate their currency and accept more exports. Opening the closed Japanese system to even limited foreign competition gutted Japanese banks’ international positions, starting a chain reaction that culminated in the 1990 collapse. Japan has not really recovered since, and as of 2010, total Japanese GDP is only marginally higher than it was 20 years ago.
China’s Limited Options

China, which unlike Japan is not a U.S. ally, would have an even harder time resisting should Washington pressure Beijing to buy more U.S. goods. Dependence upon a certain foreign market means that market can easily force changes in the exporter’s trade policies. Refusal to cooperate means losing access, shutting the exports down. To be sure, the U.S. export initiative does not explicitly call for creating more trade barriers to Chinese goods. But Washington is already brandishing this tool against China anyway, and it will certainly enter China’s calculations about whether to resist the U.S. export policy. Japan’s economy, in 1990 and now, only depended upon international trade for approximately 15 percent of its GDP. For China, that figure is 36 percent, and that is after suffering the hit to exports from the global recession. China’s only recourse would be to stop purchasing U.S. government debt (Beijing can’t simply dump the debt it already holds without taking a monumental loss, because for every seller there must be a buyer), but even this would be a hollow threat.

First, Chinese currency reserves exist because Beijing does not want to invest its income in China. Underdeveloped capital markets cannot absorb such an investment, and the reserves represent the government’s piggybank. Getting a 2 percent return on a rock-solid asset is good enough in China’s eyes. Second, those bond purchases largely fuel U.S. consumers’ ability to purchase Chinese goods. In the event the United States targets Chinese exports, the last thing China would want is to compound the damage. Third, a cold stop in bond purchases would encourage the U.S. administration — and the American economy overall — to balance its budgets. However painful such a transition may be, it would not be much as far as retaliation measures go: “forcing” a competitor to become economically efficient and financially responsible is not a winning strategy. Granted, interest rates would rise in the United States due to the reduction in available capital — the Chinese internal estimate is by 0.75 percentage points — and that could pinch a great many sectors, but that is nothing compared to the tsunami of pain that the Chinese would be feeling.

For Beijing, few alternatives exist to American consumption should Washington limit export access; the United States has more disposable income than all of China’s other markets combined. To dissuade the Americans, China could dangle the carrot of cooperation on sanctions against Iran before Washington, but the United States may already be moving beyond any use for that. Meanwhile, China would strengthen domestic security to protect against the ramifications of U.S. pressure. Beijing perceives the spat with Google and Obama’s meeting with the Dalai Lama as direct attacks by the United States, and it is already bracing for a rockier relationship. While such measures do not help the Chinese economy, they may be Beijing’s only options for preserving internal stability.

In China, fears of this coming storm are becoming palpable — and by no means limited to concerns over the proposed U.S. export strategy. With the Democratic Party in the United States (historically the more protectionist of the two mainstream U.S. political parties) both in charge and worried about major electoral losses, the Chinese fear that midterm U.S. elections will be all about targeting Chinese trade issues. Specifically, they are waiting for April 15, when the U.S. Treasury Department is expected to rule whether China is a currency manipulator — a ruling Beijing fears could unleash a torrent of protectionist moves by the U.S. Congress. Beijing already is deliberating on the extent to which it should seek to defuse American anger. But the Chinese probably are missing the point. If there has already been a decision in Washington to break with Bretton Woods, no number of token changes will make any difference. Such a shift in the U.S. trade posture will see the Americans going for China’s throat (no matter whether by design or unintentionally).

And the United States can do so with disturbing ease. The Americans don’t need a public works program or a job-training program or an export-boosting program. They don’t even have to make better — much less cheaper — goods. They just need to limit Chinese market access, something that can be done with the flick of a pen and manageable pain on the U.S. side.

STRATFOR sees a race on, but it isn’t a race between the Chinese and the Americans or even China and the world. It’s a race to see what will smash China first, its own internal imbalances or the U.S. decision to take a more mercantilist approach to international trade.

North Korea -- Rogue State, or Hub For Asian Development?

This appeared in the March 12 issue of EIR, discussing the renewed drive by Russia, China, and to a lesser extent even South Korea, to open up northern North Korea as a development area, aiming for breaking the impasse on the political issues through physical economic development. -- MIke Billington

North Korea -- Rogue State, or Hub For Asian Development?

by Mike Billington

March 13--North Korea has taken steps over the past months to
fully open up its northeastern port city of Rajin, about 50 km
from both the Russian and Chinese borders, to international
investment and trade, extending potentially to Japan, the United
States, and the world at large. North Korea has been the single
gap in the expansive regional development perspective initiated
by Russia and China during their historic October 2009 agreement
to utilize Chinese dollar reserves and rail technology, together
with Russian scientific capacities, in the development of the
resource-rich Russian Far East. South Korea, which has recently
emerged as a significant nuclear power exporter, has also
approached Russia with proposals for using Korean technology and
engineering capacities in opening up Russia's Far East. Now,
North Korea is moving to integrate itself into this
world-historic transformation of the world's greatest ``new
frontier'' for global development.
North Korea recently granted Russia a 50-year contract to
utilize the northeastern port city of Rajin, and agreed with
China to extend for a second ten years, a lease for a pier in
Rajin, granted in 2008. China's northeastern provinces of Jilin
and Heilonjiang have been blocked from the Sea of Japan by this
short Korea/Russia border area since the 1895 Sino-Japanese war,
in which Japan expelled China from the Korean Peninsula.
The new China is anxious to move its industrial and raw
material exports from the northeast, through the nearest
available port--Rajin--while Russia wants to extend the
Trans-Siberian Railway down into the Korean peninsula. Both
countries are developing their leased port facilities in Rajin,
while upgrading the long-decayed transport connections from their
own territory into the North Korean port. Russia is upgrading the
rail connections between Vladivostok and Rajin, while China is
building a modern road from Rajin to Hunchun in the Korean
Autonomous region of China's Jilin Province.
The ``Four Power Agreement'' among Russia, China, India, and
the United States, proposed by Lyndon LaRouche as the necessary
power bloc to create a new global credit system to replace the
crumbling monetary system, could have access to virtually all of
Asia as a development frontier, if the North Korean crisis, and
related problems in Myanmar, were solved on the basis of such
infrastructural development projects for the entire region.
Twice before, in 1991 and 1996, the nations of the region
attempted to initiate development cooperation in this area, known
as the Tumen River Area Development Project. The project also
included Japan, which sees the region as a gateway to the huge
development potential in the Russian Far East, and a transport
link to the Trans-Siberian Railroad connection to Europe. These
previous efforts failed, as China had not yet emerged as a major
productive power in the world economy, and Russia had neglected
the development of its own Far East. With the focus of world
development now shifting to the Pacific, as the Atlantic powers
engage in a paroxysm of self-destruction, the Tumen River region
has taken on a dramatic new potential.

- Korean Unification -
South Korea is also directly involved in these new
developments, signing an agreement in January to invest in a
food-processing joint venture in Rajin with a North Korean
company, employing 200 North Koreans. This is the first joint
venture investment in the North by a South Korean company, and
the first South Korean business venture of any kind outside of
the Kaesong Industrial Park and the Kumgang Mountain tourist
site, both on the North Korean side of the demilitarized zone
separating the North and South.
Before the Bush-Cheney Administration sabotaged the
significant moves towards peace and development on the Korean
Peninsula, initiated by the Clinton Administration, the divided
Korean nation was moving rapidly toward integrating the vastly
divergent economies of North and South, primarily by rebuilding
the rail connections which had been cut since the Korean War in
the 1950s. While that process is now on hold, South Korea is
interested in finding a way to ship goods by sea to the North
Korean Rajin port, and from there, link to the Trans-Siberian
Railway to reach markets in Europe, as well as to facilitate
South Korean cooperation in the development of the Russian Far
East.
South Korean President Lee Myung-bak visited Moscow in
September 2008, laying the basis for utilizing South Korean
expertise in transportation and energy to develop the Russian Far
East, and for building pipelines and rail connections between
Russia and South Korea--which, of course, means building them
through North Korea, requiring an end to the hermetically sealed
division of Korea, a legacy of the British-instigated Cold War.

- U.S. Involvement? -
The United States, meanwhile, is engaging North Korea
through diplomatic means, trying to re-start the Six Party talks,
aimed at getting Pyongyang to give up its nuclear weapons program
in exchange for economic aid and investment, and a peace treaty
to officially end the Korean War, which concluded with an
armistice in 1953. But, until then, the U.S. is standing behind
the foolish UN sanctions against new investments in North Korea.
Asked about these sanctions, a Chinese Foreign Ministry spokesman
said, on Feb. 25, that its business investments in North Korea
are ``normal business deals,'' and therefore do not run counter
to the UN sanctions.
Speaking of the North Korean situtation at the Summit of
Honor on Atoms for Peace and Environment (SHAPE) in Seoul, on
March 12, Mohamed ElBaradei, the retired head of the
International Atomic Energy Agency, said, ``The issue involves
North Korea's insecurity and need for economic development, and
in order for headway to be made, the world should address both
these issues.'' He said that only by alleviating concerns that
Pyongyang will not be attacked or be subject to regime change can
there be progress.
Scott Snyder, head of the Center for U.S.-Korea Policy at
the Asia Foundation, and Jack Pritchard, president of the Korea
Economic Institute and former U.S. special representative to
North Korea, visited North Korea in November. While still
cautious about improving Washington-Pyongyang relations, Snyder
noted that following North Korean leader Kim Jong-il's visit to
Rajin in January, the local leadership has been replaced by
people with experience in international relations, headed by the
former minister of trade, and that a $10 billion Taepung
International Investment Group has been established to finance
investments in food, rail, roads, ports, and power supply. Will
the United States engage with its Eurasian allies, to develop the
next great frontier on Earth?

mobeir@aol.com

Tuesday, March 30, 2010

ETF Securities Releases Results of Gold Bullion Vault Audit

http://www.kitco.com/reports/KitcoNews20100329B.html

ETF Securities Releases Results of Gold Bullion Vault Audit

29 March 2010,11:00 a.m. EST
Kitco News


New York – ETF Securities released the results of a third-party audit with the purpose of showing its commitment to transparency. The audit was performed on the bullion stock held on behalf of the ETFS Swiss Gold Trust (SGOL) at the vaults of UBS Zurich.

In an issued press release, ETF Securities stated that the audit conducted by Inspectorate International Limited found that the account held title to 757 London Good Delivery, Large Gold Bars said to be a purity of 99.50% minimum, up to and including 99.99%. As per the weight list records of the Custodian, the bars total 304,549.565 fine troy ounces of gold.

“As part of our ongoing commitment to transparency to the market and, most importantly, to our investors, ETF Securities engages Inspectorate International Limited to audit each ETF Securities gold bullion bar held in the vault bi-annually, once at the end of the calendar year and once at random,” said Fred Jheon, Managing Director and Head of Product Development.

ETF Securities Ltd is a leading promoter and issuer of ETF Securities exchange traded products (ETPs), specializing in commodities, with global assets under management of over USD $17.2 billion.

The press release stated, “Each individual gold bar held by the sub-custodian, was agreed to the records of the sub-custodian as being held in the name of the above mentioned account. All bar numbers, brand and purities of each bar was checked against the records of the sub-custodian. The weight of a representative sample of bars was taken and then checked against the sub-custodian’s records.”

Kitco News news@kitco.com

Distress Signals on Crisis Watch

http://www.financialsense.com/fsu/editorials/willie/2010/0310.html
Distress Signals on Crisis Watch
by Jim Willie, CB. Editor, Hat Trick Letter | March 10, 2010

Print

To be sure, almost without debate, all the financial world has turned to crisis mode. One can safely describe the norm to be crisis proliferation. This theme will clearly continue for the full year in progress. The signs are everywhere. The evidence is compelling. The criticism of remedy is replete with denials. The USGovt officials grow more desperate with each passing week. The Dubai and Greek debt woes seemed to have opened Pandora's Box. Review a scattering of distress signals, sit back and tell yourself that all is under control. It is only if you live in a Fantasy Land. Since September 2008, the fantasy has blossomed in full bloom. The list of distress signals is certain to grow, not reduce. Never in my lifetime have so many loud signals simultaneously been flashing. Forgive me if a few dozen other distress signals were overlooked or omitted.

For simplicity, and to make a point, ignore all events in Europe concerning sovereign debt. My theme all along is that not only has no remedy come for the USEconomy and US Banks and USGovt financial structure, but no remedy is even attempted. The name of the game is to create gigantic cash flows that the syndicate grabs from to its strategic position, as fraud continues with no semblance of prosecution. They control the USDept Treasury and the USCongress and the US Financial regulators. True movement toward remedy would liquidate Wall Street and much of the syndicate edifices that serve as fronts for the USGovt control tower. Details for the following stories and developments are covered in the March issue of the Hat Trick Letter, complete with analysis. Meanwhile, back at the gold mine, the gold price has remained in an unusual extremely tight range. Its pattern resembles a coiled spring. A breakout seems obvious, but timing is not. Upward is my forecast as the first quarter of 2010 ends.

GLOBAL EARTHQUAKES

The series of earthquakes in recent weeks is unprecedented. Typically, seismic events are uncorrelated across the globe. The string has prompted many questions, even from scientists. They might do well to take a close examination of some nifty powerful weapons sported by the USMilitary. Do a Google search on the HAARP and sit back for an exposure stun. Even little Costa Rica endured a 5.7 earthquake last week, which shook my building. Try to explain this lovely photo over Norway in December as naturally occurring. Explanations offered are laughable.

1

FANNIE MAE PUSHBACK FAULTY LOANS

Fannie Mae & Freddie Mac have begun a concerted effort to push back fraudulent loans to major banks that originated them. They reek of impropriety. Their faulty underwriting and approval process extends from lax confirmation of income, phony appraisals, and duplicate property titles. The Big Four banks have already begun to absorb losses, adapting their business structures. True to form and pattern, Fannie Mae logged another staggering quarterly loss over $10 billion. The Black Hole continues to suck in large chunks of capital. For every $1 loss in the open is another $10 loss from credit derivatives out of view.

FDIC & NEXT BIG BANK FAILURE WAVE

Several hundreds of US banks remain vulnerable. Their reserves are not prepared to defend against the next waves of commercial mortgage losses, after the residential Option ARMortgages have also begun in earnest out of first gear. Another cool $1 trillion in bank losses could occur this year and next, along with at least 300 bank failures just this year. The FDIC is again in deficit for insured bank deposits.

FDIC APPEALS FOR PUBLIC DONATIONS

In a bizarre demonstration, a public charade, the Federal Deposit Insurance Corp appealed to the United States population for donations. Why not? A decade ago they began the feature on IRS tax returns to donate money to pay down the national debt. A person has to be an utter complete moron to donate, since it only goes to the syndicate channels. The FDIC is as broke as it is desperate.

BIG BANK BONUSES CONTINUE

Showing no conscience, no remorse, and no class, the big bank executives continue their galling awards for outsized bonuses. They must feel entitled. They have avoided all charges for fraud and securities violations, thus must feel deserving of massive awards. One year after the US banking industry croaked and died, the executives are lining up for huge bonuses, even after many banks are wards of the state. The reality is that the state is a captive of the banks. They seized the USGovt finance ministry fair & square, and deserve their booty.

CITIGROUP DELAYS WITHDRAWALS

Invoking an old USFed regulation still on the books, Citigroup declared that withdrawals from many types of accounts must wait seven days to receive funds. Since highly liquid accounts are not required to maintain reserves requirements, banks are granted a 7-day leeway in the current regulatory framework. They have not used the legally available window until now. Some speculate that a Bank Holiday comes, an event the big banks might exploit by refusing depositors their money. Mass bankruptcies could follow, then bank system restructuring, but with depositors left out in the cold.

NO MARK TO MARKET FOR COMMERCIAL LOANS

In April 2009, the Financial Accounting Standards Board blessed and the USCongress approved into law the policy of permitting big banks to value their own worthless and badly impaired assets. That started the Zombie Bank era, whereby insolvent banks pretended to function, but with stock shares trading avidly. Last week, USFed Chairman Bernanke cast aside Mark-to-Market once again, so that heavy commercial loan losses could be ignored. They will instead be marked according to cash flow and income streams, thus ignoring the heavy collateral losses. Property market prices will not be factored in. Ironically, banks will suffer constipation, since they will not refinance the same loans involved. Loan to value on loans will be too excessive.

SIZE OF BIG BANKS GROWS, SO DOES FRAUD

In the last 10 to 20 years, the proportion of banking system assets coming from the biggest US banks has grown many multiples. So has their influence on the USGovt control of the purse. The argument for the USGovt suffering a coup at the hands of the big bankers is easy to make. In my view, their growth in size, influence, and control serves as a primary example of the Fascist Business Model. Its trademark is endless war, endless bond fraud, and public consternation as the bitter fruit.

USTREASURY AUCTIONS HIT 100% INDIRECT BIDS

In recent months, the USTreasury has been saddled with the responsibility of securitizing the USGovt deficits. The debt is packaged in bonds and sold at auctions. Some auctions were close to failures. Primary bond deals are choking on inventory, obligated to buy, often almost the only buyers. The hidden degree of official monetization is astonishing. Subtract the central bank purchases and the institutional purchases from the issuance, and basic arithmetic arrives at roughly 50% Printing Pre$$ purchase in hidden fashion, half the bonds monetized. In late February an official auction showed 100% Indirect Bids, which means central banks took the entire heap of junk bonds sold by the USGovt at nearly 0%. The bubble continues, but with much strain.

2

QUANTITATIVE EASING TO END... REALLY??

The $1.3 trillion in QE purchases of USTreasurys and USAgency Bonds is scheduled to come to an end this month. Threats of a stern pullback are heard from the monetary easing that brought not only powerful QE but also near 0% free money to the Elite. The USFed talks tough for an agency that is badly insolvent, as in busted broke. Sure, they can print money but the asset offsets the debit. Their balance sheet is loaded to the gills, like 50%, with wrecked mortgage bonds. If they are marked down even 5% to 10%, the USFed is insolvent. Reality would dictate a 30% to 40% writedown. Anyone who believes the QE is over is a fool, and probably thought the subprime mortgages were contained. The same people who made such errors are still in charge. Besides, the 2010 election season is months away, and that means apply oil to the Printing Pre$$, revving up, and pouring out tainted money.

US JOBLESS RATE PASSES 21%

Finally in the last few months, the broader U.6 unemployment rate that counts discouraged workers has been thrust into the news. It is actually mentioned in financial press news stories. The gimmick of considering a cast aside worker to be a dead man nonentity is coming to an end. Such workers who cannot find a job, who have exhausted jobless insurance benefits, who just subsist or function as dependents, these people are humans drifting through the USEconomy. They are receiving more attention, even as the U.6 rate of unemployment hit 21.6% recently. It is still rising. Its level challenges that of the Great Depression.

TAX REVENUE REMAINS DEPRESSED

The USGovt stat-rats can doctor many statistics easily, with hedonic lifts from technological advances, from seasonal adjustments that seem to be changed to suit their needs on a monthly basis, from estimates that are routinely revised downward heavily, from reliance upon outmoded devices like the Birth-Death Model, from removal of 'One Off' events at their whim. Some of the statistics most difficult to fudge, doctor, and corrupt are basic tax receipts for state sales tax and federal income tax. They are both down, the federal down very strongly. No sign of recovery is evident in either tax series.

BREAKDOWN OF A-D-S BUSINESS INDEX

The Aruoba-Diebold-Scotti business conditions index is designed to track real business conditions at high frequency. Its underlying economic indicators include weekly initial jobless claims, monthly payroll employment, industrial production, personal income, manufacturing & trade sales, and quarterly real GDP. They blend high and low frequency information with stock and flow data. The ADS index has broken down in the last several weeks, signaling a Double Dip recession, or actually a continuation of the current USEconomic recession that never came to an end.

3

BANKRUPTCIES & FORECLOSURES RUN AMOK

The pace of personal and corporate bankruptcies is not improving. The pace of home foreclosures is not improving either. The claimed USEconomic recovery is shatterd by the continued consumer bankruptcy filings, which surged 14% in February compared with a year ago, according to the American Bankruptcy Institute. The ongoing woes at the Govt Sponsored Enterprises is an open book available for public view. Fannie showed a 5.38% delinquency rate on mortgages in December, while Freddie just passed the 4.0% threshold in January. Both GSE delinquency rates continue to rise rapidly each month.

HOUSING PRICES RESUME DECLINE

After the USGovt prop from a widely applied first buyer tax credit, and after some key state moratorium lifted rules on foreclosures, the housing sales are sliding downward. The consequent impact on housing prices is clear. They are heading back down over and above the seasonality. The USEconomy was built atop a housing bubble and mortage finance bubble from 2003 to 2007. The scourge of a housing bust and mortgage debacle still plays havoc on the national economy. Beware of what is built on shifting sands.

ONE QUARTER OF US HOMES UNDERWATER

First American reported that 11.3 million homeowners were underwater as of the end of 2009, an amount equal to 24% of all homes with mortgages. In a parallel to the sclerotic US banks, the largest of which uniformly cannot lend since they are insolvent, too many US households cannot spend and invest since they are also insolvent. The proportion of underwater homes, not submerged below sea level, but instead struggling with a loan balance in excess of the home value, is actually growing. The Zombie banks are circled by Zombie households.

HOME BUILDERS SITTING ON CDO BONDS

Orleans Builders has gone bust in the NorthEast. Their balance sheet should strike fear in the hearts of the investment community. Fully 20% of their entire debt was tied to Collateralized Debt Obligations. Questions have arisen whether such CDO toxic debt is laced throughout the major builders. Even questions whether deadly CDO toxin is laced throughout corporate debt structures generally. The commercial paper (supply chain debt securities) continues to evaporate. Perhaps CDO acid will compound the damaged debt structures for a larger swath of corporate America than expected.

TIPPING POINT OF INFLATION OR DEFLATION

Many naive economists, including Benny Bernanke, incorrectly assess the picture concerning price inflation. Ben has missed badly on every conceivable forecast of importance. Since he serves capably as the gatekeeper for the US financial syndicate in control of the countless liquidity facilities and their ample cash flow, he does receive key awards. The prices from the cost structure to the USEconomy are rising. The prices from the asset bases in the financial markets are falling. The mixture of both offers up evidence in aggregate of price stability, when actually the hurricane worsens from clashing low and high pressure zones. Look for rising costs and falling assets to worsen, still showing an aggregate zero. A tipping point comes soon that will lead either to broadly rapid falling prices or to broadly rapid rising prices. My money is ALWAYS on the rising price scenario after the initial shock waves of crisis come. The US bankers and USGovt finance ministers ALWAYS choose to put the pedal to the metal and print money in accelerated fashion, whenever in doubt. The Deflation Knuckleheads have been silent for almost a full year. They will not have their day in the sun. Herr Weimar will, as in a Weimar storm of hyper-inflation.

ASSURED CALIFORNIA & LOS ANGELES COLLAPSE

Seven big US states are in unresolvable distress, which consist of over 30% of the US population. The key state to watch is California, the nation's largest, the trend setter, since it operates in a fishbowl for all to see. The state faces a difficult decision to default or to issue another round of IOU coupons. This time, the many institutions and businesses might be ordered by law to accept the coupons as cash. A collapse of not only California, but its major city in Los Angeles are lined up assured in the near future. Municipal bonds in the Golden State and nationwide are at great risk of defaults, sure to arrive like night follows day.

FRETTING OVER CHINA USTBOND SALES

A big tizzy came after China was revealed to have sold $40 to $50 billion in USTreasury Bonds in a recent reported month. Their actual sales are difficult to pin down, since they play crafty games in using such USTBonds as collateral in large asset purchases. They are traveling troubadors crossing the globe, using USTBonds in acquisitions of strategic commodity assets. For over three years, Japan halted its USTBond purchases. Now China is going into reverse with outright sales on a net basis. If Asian buyers fail to buy, the USGovt will be isolated for recognized monetization of its debt. In fact, evidence mounts and discovery has already occurred.

CHINA NULLIFIES DEBT GUARANTEES

In a move difficult to fully comprehend, the Chinese Govt from its Beijing offices has decided not to support regional and city debt. Their provincial and local governments are on their own. Some kind of debt ripple event might be in the offing. Some sort of surprise Yuan currency devaluation might be in the offing. Some type of commodity stockpile partial drawdown sales might be in the offing. Some scheme of scheduled bankruptcies might be in the offing. Clearly, some significant major disruption cometh.

GOLD SITS ON A COILED SPRING

The gold price has an eerie sense of stabilty about it, a false stability in my view. Absolutely nothing has changed in the global pursuit of ruinous monetary inflation, as all Western currencies are fatally damaged. The monetary growth is at full throttle. Estimates for USGovt deficits are periodically being revised upward. The USDollar continues to benefit from the structurally damaged alternative pseudo-reserve in the Euro currency. Look for short covering to blast a hole in the FOREX market soon, as the Euro will begin to race higher when either kind of resolution comes. If Greece is expelled as in my forecast, the Euro will look trim, especially upon instant expectation of expulsion quickly of Italy and Spain. If Greece is rescued, then a new wave of profligate bond rescue will indeed occur. But the cloak of uncertainty will work to lift the defective Euro currency and lead to a short cover rally. Either way, the USDollar will resume its decline, the tail on the Euro dog. Mentioned before, my best sources indicate without any equivocation that German leaders will talk of solidarity, say all the right things, but offer no aid to Greece as it suffers the desired default and removal from the European Monetary Union that shares Euro currency usage. The end to German sponsored welfare has been planned and sealed.

4

The technical chart of the Gold price shows a core pennant pattern that begs to escape the clutches of its tightening boundaries above and below. Stability is evident, but in a queer fashion, as nothing is stable globally, and everything financial is in crisis mode. That is hardly the framework to encase a stable Gold price. The long-term trend is up, seen in the still rising 200-day moving average. The 50-day MA offered support in late February. A stealth rally in Gold is my forecast. Reaction to broad fresh new economic weakness in both the United States and Europe will trigger a second formal round of Quantitative Easing, the euphemism for grotesque monetary inflation and organized ruin of currencies. When the Gold price moves beyond the upper pennant barrier, it might move quickly.

Copyright © 2010 Jim Willie, CB
Editorial Archive

Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a Ph.D. in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials.

Jim Willie CB is the editor of the �HAT TRICK LETTER� Use the below link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise like a cantilever during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by heretical central bankers and charlatan economic advisors, whose interference has irreversibly altered and damaged the world financial system. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy. A tad of relevant geopolitics is covered as well. Articles in this series are promotional, an unabashed gesture to induce readers to subscribe.

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The opinions of FSU contributors do not necessarily reflect those of Financial Sense.

Monday, March 29, 2010

Red Alert: Two Explosions Hit Moscow Metro

from STRATFOR

Red Alert: Two Explosions Hit Moscow Metro

March 29, 2010

There have been two explosions on Moscow metro systems March 29. The first explosion hit the second carriage of a metro train stopped at Lubyanka station and the second at Park Kultury station. Ten people were initially reported injured in the first blast with an unknown number injured in the second blast. With two blasts approximately 40 minutes apart in Moscow subway stations it is most likely it was coordinated terrorist attacks in Russia’s capital.

According to STRATFOR sources in Moscow, the two locations of the attacks on the subway in the city are symbolic. The first attack in Park Kultury is symbolic in that it is one of the city’s cultural centers being located near Gorky Park. The second location of the attack at the metro station of Lubyanka is nearly under the Federal Security Bureau’s headquarters—former KGB headquarters—the security hub of Russia. According to media reports, the attacks were caused by suicide bombers at the peak of rush hour in Moscow. Thus far, rumors are flying that Muslim extremists are responsible for the attack. In the past, there have typically been spring-summer attacks in Moscow in February, and spring is just now arriving in the capital. STRATFOR will be closely watching the situation for more details.

Sunday, March 28, 2010

Crisis Event: South Korean Ship Sinking In Yellow Sea

from STRATFOR


Crisis Event: South Korean Ship Sinking In Yellow Sea

March 26, 2010

According to South Korea’s Yonhap News Agency, a 1,500-ton naval vessel with a crew of 104 sank off of the island of Baengnyeong in the Yellow Sea on March 26. Based on size and crew displacement it is likely either an Ulsan-class guided missile frigate or a Po Hang-class corvette. The incident took place between 9 and 10 a.m. local time. The cause is unknown, but the BBC has reported that a torpedo was involved. Seoul has said there was an explosion at the stern, and it is investigating whether a torpedo attack from North Korea was the cause, according to YTN TV. The contested waters between North and South Korea do see the occasional naval clashes, but the loss of a surface combatant on this scale would be extremely significant.

Red Alert (Update): South Korean Ship Sinking

from STRATFOR

Red Alert (Update): South Korean Ship Sinking
Stratfor Today » March 26, 2010 | 1532 GMT

RED ALERT

A South Korean ship has been sunk in the vicinity of the maritime border with North Korea. While details are sketchy, initial reports suggest that some South Korean naval ships had been involved in combat with an unidentified ship in the area immediately preceding the incident. Other reports suggest that the ship was struck by a torpedo. Yet another indicates a stern explosion.

Tensions between the two Koreas have always been at least moderately high, but previous governments in the South have tended to seek a rapprochement. That warming has cooled significantly in recent months; one result has been occasional naval skirmishes.

There are three issues to keep in mind when evaluating the potential for an inter-Korean conflict. First, the South Korean army, air force and navy are far better equipped and run than the North’s, despite the North’s numerical superiority when it comes to men in uniform. Stratfor has little doubt that the South could ultimately prevail in a military conflict.

But – and this is the second issue – it would come at a massive cost. The North maintains many thousands of artillery emplacements within range of Seoul. So while the South’s military is superior by most measures, the North could quite easily decimate the South’s capital and largest city. Roughly one in four South Koreans live in Seoul.

Third, the South Koreans are not alone. Despite recent shifts in American military posture, the United States still maintains 25,000 troops in South Korea – so an inter-Korean conflict immediately escalates to a global issue.

Tuesday, March 23, 2010

Over-Arching Sovereign Debt Crisis

http://www.freebuck.com/articles/jwillie/100223jwillie.htm

Over-Arching Sovereign Debt Crisis
by Jim Willie CB
home: Golden Jackass website
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Jim Willie CB, editor of the “HAT TRICK LETTER”
Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.
Neither the US financial press nor the US bank leaders take the sovereign debt crisis seriously. Even the USCongress seems totally unaware of the growing global intolerance for government debt out of control. The issue is rollover of short-term debt, size of the overall debt burden, borrowing costs to sustain the debt, annual deficits that accumulate further debt, and size of debt versus economic size. The United States projects a certain degree of arrogance that foreigner must continue to finance the USGovt debt at a time when the evidence gathers on loud suspicious activity in the USTreasury auctions. The US travels down a road to debt default also, as the mask of corrupt USTBond management is removed. The plight of Europe will strike the United States and United Kingdom, as contagion is ripe. The claim of containment incites laughter. The Euro currency has finally begun to stabilize, which will make all the more apparent a global bull market in the Gold price. The Gold price in almost every major currency is rising. In the US$ it will be last.

USTREASURY AUCTION BID RESULTS
Analysts have noticed the drop-off in Indirect Bids, which means central banks participate less. Analysts have noticed the lack of identification of Direct Bids, which means the USGovt is lying through their teeth as they monetize the debt. Analysts have noticed the new ledger item called Household as bidder, which reeks of accounting fraud in creation of a catch-all category. The USFed and USDept Treasury can no longer hide their enormous monetization of USGovt debt. Some reports mention that bond professionals are extremely anxious about the results of recent USTreasury auction. A huge jump in the Direct bidders took 24% of the auction supply. The apparent lack of transparency behind this group has increased speculation that the USFed could be directly buying its own auctions, so as to prevent both an auction failure and a sudden rise in yields. Safe haven, my foot!

Indirect bidders is widely viewed as the most important category. It defines the success or failure of the auction, since foreign central banks are entered from this category. A 30-year bond auction came in with a pathetic 28% bid as Indirect, far below the 36 to 40% levels seen across year 2009. This is worth watching for establishment of trend before billboard alarms (AMBER ALERT) are made. The Direct bid ratio (in yellow) looks fishy. The USFed & USDept Treasury would use this category to attempt to hide the elephant in the living room, calling it an extra oversized sofa. Failure to identify these mythical bidders will fuel speculation of devious concealment of monetization, far greater than the official Quantitative Easing programs that are heralded as coming to an end in mid-March. The ugliest deception is the usage of the Household category to pretend that Fannie Mae and its fat gang of sewage treatment managers are actually buying USTreasurys. Press networks are oblivious to the con game. See past Hat Trick Letter member reports for details, fully cited and analyzed.


A napkin argument is relevant here. The foreign accumulation of new USTreasury debt is tiny compared to what USTBond debt is issued and auctioned. Nobody seems to be capable of primary school mathematics, once graduation to Wall Street and USGovt service is achieved. If new debt is five times what foreigners are buying, then after factoring the domestic bond fund absence like PIMCO (they hate bonds nowadays), one can quickly conclude that the USFed/Treasury tarnished tagteam are monetizing 60% to 80% of all new debt issuance. Isolation is here, but must be more fully recognized.

USTREASURY DEFAULT RUMBLINGS
The Greek tragedy has an American conclusion. It is written in stone, but US leaders and the US population are blinded by a generation of dominance and privilege, turned hegemony. Like a tsunami, the tragedy will strike the WashingtonDC shores and rip its financial seawalls. A sequence is at work, with Southern Europe next in line, then England, finally the United States. The financial foundation data demands it. The denials ignore reality. The isolation of the USGovt debt finance machinery, and exposure of its abused Printing Pre$$ assure a default event, or at least a path to such a default. It will probably not be recognized any more than the 911 coup d'etat over eight years ago by the security establishment.

Little do the US bankers and leaders seem aware, but the Greek crisis will circle the globe and strike America. The initial gong was Dubai, actually with a prelude in Iceland that smacked both British and Dutch banks. Dubai hit home, since it meant the credit crisis had struck again, the problem not resolved. In fact, nothing has been resolved, as all things debt related are greater in magnitude and suffering from worse leverage. The PIIGS nations of Europe are all soon to be swept away and forced to suffer the shame of debt default, a return to former domestic currencies, and steep currency devaluations, amidst considerable contract adjustments. The sovereign debt crisis will be be confined to the smaller European nations. It will spread to the United Kingdom and the United States, the greatest debt and bond offenders. They have abused debt in sustenance of financial asset bubbles kept aloft in grandiose juggling acts. They have abused debt to preserve relics of an empire long faded. What we see is a fiscal crisis of the Western world. The faulty foundation for the Euro currency and EU economies is the crux of the current problem under the microscope, since no mechanism exists for a bailout of any government by the European Union, other member states, or the European Central Bank. Short of withdrawing (or being expelled) from the European Union, the only options for Greece are to reduce the deficit, default on government debt, or receive a bailout. No decision will be quickly or easily reached. As stated before, German leaders will pretend to offer assistance, attach difficult conditions for aid, and walk away when not met. They want expulsion and an end to $300 billion in annual welfare for wrecked nations carried in the South, a grand impairment to the German savings and standard of living.

The flaws of chronic government deficits, expanding government functions, and fractional banking have resulted in what Niall Ferguson of the Financial Times calls the fractal geometry of debt. Most Western economies are vulnerable, including the largest, as contagion is ripe. The Keynesian approach has very possibly run its course, without recognition by those who continue to pull its debt levers and expect similar effects as seen 20 years ago. For two years, the Hat Trick Letter has claimed a painful systemic cycle is in progress in a global restructure of monetary and banking systems. Governments find themselves helpless to promote growth, as the hallowed multipliers are out of gear altogether. Stimulus rings hollow. Globalization has rendered the older industrialized economies vulnerable, with their higher wages, pollution control costs, and regulatory burdens. The increasingly common practice of pushing sovereign debt to short-term scheduled rollovers has begun to backfire. Clinton & Rubin started that trend, now in backfire mode.

Debt default, just like for businesses, tends to occur when debt rollover cannot be refinanced. As the crisis intensifies inside Europe, the USDollar rises. Funds are in migration away from the Euro currency wherever possible. The rising US$ exchange rate actually weakens the prospects for a USEconomic recovery, where re-industrialization is urgently needed. That is correct. The US must rebuild its factories and promote export businesses, a reform nobody in the USCongress or Wall Street dare mention. The higher US$ exchange rates translate to a double edged sword, higher export prices from the US producers and higher cost structures to the foreign economies. See the commodity index in Euro terms. The bankers and politicians in Europe must halt the Euro decline, or else face rising systemic costs across the European Union economy. The stimulus for exporters with a lower Euro has a backfire to control, with costs. Their price inflation at all levels is rising fast. Watch the Euro stabilize.


RECOGNITION OF HIGH US DEBT RISK
USGovt debt is a disaster, not the least a safe haven. The new 2010 budget is projected even by White House estimates to exceed 100% of GDP within two years. The long-run projections of the US Congressional Budget Office suggest that the US will never again run a balanced budget, as in NEVER. Both this year and last year, the federal deficit is near 10% of GDP, the size of the national economy and new standard measure of limited tolerance. Heavy debt burdens, in addition to diverse insolvency (in households, federal, banks, and trade) create a tremendous drag on economic growth. Two main forces prevent higher USTreasury Bond yields. Purchases of USTreasury and USAgency Mortgage Bonds by the USFed and USDept Treasury in major monetization operations is the domestic solution. Purchases of the same bonds by Chinese, Japanese, British, and OPEC nations is the foreign solution. With the mid-March plan to halt the USGovt official Quantitative Easing program, and the outright sales by the Chinese of USTreasurys, the ISOLATION HAS BEGUN. The risk stands squarely with the USDollar. JPMorgan will secretly continue to buy USTBonds and control long-term rates the usual way, by force, by usage of Interest Rate Swaps, their secret weapon. Not only USTreasurys in a bubble, they are the most corrupted market.

Last week Moodys Investors Service warned that the Aaa credit rating of the USGovt should not be taken for granted. The premier rating will come under pressure in the future unless additional measures are taken to reduce chronic budget deficits. Niall Ferguson wonders about the clarion call by Larry Summers, who asked the quintessential question before he returned to work for the Obama Admin. Summers appropriately asked, "How long can the world's biggest borrower remain the world's biggest power?" Upon reflection, the sovereign debt crisis of the West has begun in Greece, the birthplace of Western civilization. Soon it will traverse the channel to Great Britain, the home of the last great Empire. The crisis will reach the last bastion of Western power, on the other side of the Atlantic. The United States will face a steady stream of powerful shocks to its sprawling Empire, supported in recent years by deep bond fraud and military aggression, not a good combination. The global reserve currency will not prevent the credit crisis from hitting USGovt debt. My forecast is for a technical USTreasury default, without full recoginition, even while the USGovt is given a triple-A rating out of largesse mixed with intimidation. Refer to coerced debt forgiveness.

Taleb advises a short of USTreasurys. He points to a broken USGovt fiscal condition, reckless bank leadership, and a situation actually worse than a year ago (not better). Nassim Taleb, author of "The Black Swan" advises the entire planet earth should invest against the USTreasury Bonds, and to anticipate their decline. He was specific, that as long as Bernanke is USFed Chairman and Lawrence Summers is White House economic adviser, the Obama Admin will conduct policy in a manner to bring a path to ruin for USTreasurys. In the last two years, the USFed and USGovt have lent, spent, or guaranteed $9.66 trillion to lift the USEconomy from the worst recession since the Great Depression, according to data compiled by Bloomberg. The results have hardly even achieved stability. Conditions have deteriorated enough to result in annual $1.5 trillion budget deficits, mostly inherited from the past administration. Taleb said, “Deficits are like putting dynamite in the hands of children. They can get out of control very quickly. The problem we have in the United States, the level of debt is still very high and being converted to government debt. We are worse off today than we were last year. In the United States and in Europe, you have fewer people employed and a larger amount of debt. Democracies cannot handle austerity measures very well. We are going to have a severe problem." He referred to cutting USGovt spending, without mention of the endless wars and grandiose siphons of funds by Wall Street and the Pentagon. Fiscal spending cuts are to occur in the Second Half, as in year 2012.

The litmus tests of USTreasury deep instability are A) the recognized monetization of USGovt debt, B) the size of the USGovt deficits, and C) the inability for the USEconomy to recover from insolvency. All three tests are in the process of failing here and now, raising attention for eventual default. As a result, Moodys issued a statement on the USGovt debt rating. It should be junk bond B level grade. Some claim that none of the major debt rating agencies will downgrade the USGovt debt. It could happen. Moodys stated, "The ratios of general government debt to GDP and to revenue are deteriorating sharply, and after the crisis they are likely to be higher than the ratios of other Aaa rated countries. If the current upward trend in government debt were to continue and become irreversible, the rating could come under downward pressure. The trend and the outlook would be more important than any particular level of debt." The more likely outcome is a serious decline in the USDollar after a more clear certain path for Europe. A repaired, reformed, renewed smaller Euro currency would be the potential death knell for the USDollar. The European continent will consolidate, an event certain to return attention to crippled USGovt and USEconomic financial conditions.

EURO CURRENCY UNCERTAINTY
The continent of Europe has never been more uncertain in its future in at least three decades. The European Monetary Union had a flawed plan for shared common currency usage, whose failure was forecasted (not by the Jackass) by critics to its architecture upon its birth in 1989. In the last several weeks, the plight of the deeply indebted and broken insolvent Southern European nations has dragged down the Euro currency. Uncertainty abounds on eventual debt rescue for Greece. For hereditary genetic reasons, for national welfare backlash reasons, for systemic design deficiency reasons, the Euro will not face ruin, but instead face consolidation. Germany leads the process, and will force out Greece, then Italy, later Spain & Portugal. Their nationally marked Euro Bonds have been trading at non-German levels for over two years. Such is a clear indication of multiple Euros masquerading as a common currency, inviting arbitrage and breakdown.
The Euro currency chart shows signs of stability. The stochastix have been oversold for two solid months. The price action in the last two weeks seems to loudly indicate stability in the Doji Stars, marked by open and close nearly equal, but with noisy intraweek high and low. The technical traders in the vast FOREX pits have started to cover their massive shorts. The attempt to establish the Euro as the basis of a new carry trade will be interrupted by the Germans, who will let Athens go. The Greeks will not be able to make interest payments. The nasty fact of life is that Greek Govt debt is scattered all over banks in Germany, France, England, and Switzerland. So expect powerful ripple effects to debt default and bond writedowns. A key to watch is riots. The Gold price will rise in US$ terms when the Euro shows signs of a leveling process. One warning signal to keep an eye on is the 20-week moving average crossover of the 50-week moving average. The Doji Stars oppose the MA Crossover, the former hinting of a rally upward, the latter hinting of a continued leg down to the 130 level.
A predictable aberration is evident. Whenever the USTreasurys look like they are on the brink of a meaningful breakdown, a Stock decline occurs, and funds flow heavily into USTreasurys. Last week, the Gold/Euro price chart showed an early breakout. The Gold price in Euro terms should be interrupted when the Euro achieves some stability. The beginning of a rally in Gold in all currencies seems underway, a movement kicked off by the European debt problems. The Gold breakout in Euro terms is possibly soon to be joined by breakouts of Gold in British Pounds, Gold in Japanese Yen, and Gold in Swiss Francs, with the Gold breakout in USDollars last. When the surge is universal, Gold will be perceived as a currency in full direct competition with the tainted fiat paper currencies! The critical lack of gold bullion in the London metals exchange sets the stage for numerous events shrouded in breakdown, and a broadly rising Gold price. Do not be fooled by a correction in the Gold price in US$ terms. It is rising across foreign currencies, in an environment of extreme gold bullion shortage. The end of the Q1 gold price correction is near. Many investors sense nothing happening in the gold arena. Not true! The entire foundational structures for the fiat monetary system are crumbling under the financial market floors. The support pillars are fragile and weak if not vanished and missing. The Powerz keep the game going mainly to perpetuate their trillion$ frauds further. Reform and remedy is not their plan. The objective is theft and pillage to the end.

VULNERABLE EUROPEAN BANKS
A Pan-European sovereign debt crisis is unfolding, appreciated in Europe, minimized in the United States. After removing mountains of ruined bonds from private banks, government debt risk is extremely acute. A trade took place, transferring risk from big banks to the government balance sheets. In the process, sovereign debt has weakened dangerously even as the debt problem has been amplified. The implicit leverage has effective been increased, but without benefit of the natural firewalls installed at financial institutions. Furthermore, and worse, European banks have an order of magnitude more assets than their economic size. A default cascade comes, as leverage is out of control. A run on private banks is assured. For at least Europe, it is game over as debt is not resolvable and tolerance is nil. The Greek chapter might be a diversion from the core problem soon to erupt. Excess liabilities and leverage make for a witch's brew. The de-leverage process will knock many structures to the ground. Europe has a recent history replete with riots in urban streets, more than anywhere in the western world. Expect riots across all Southern Europe. Instead of a domino effect like what was feared by the Lehman collapse, a domino effect is at risk of slamming sovereign debt on a global basis. The process is beginning. See the mammoth private bank assets, which easily eclipse their national economic sizes. Leverage is enormous in Europe, just like in the United States and England. Notice several Greek banks with adjusted leverage of nearly 90 times, whose assets are nearly 30% of the Greek GDP. Thanks to Reggie Middleton for an excellent graph, and an excellent point to make.


DOOMED SOVEREIGN ALCHEMY
A leading bank analyst believes that ultimately, sovereign alchemy will fail. Egon von Greyerz is manager of the Matterhorn Asset Mgmt fund. He said, "When we look at the world economy today, wherever we turn, we see a wall of risk. And sadly this is an insurmountable wall of risk with risks that are totally unprecedented in history. There has never before been a potentially catastrophic combination of so many virtually bankrupt major sovereign states (US, UK, Spain, Italy Greece, Japan, and many more) and a financial system which is bankrupt but is temporarily kept alive with phony valuations and unlimited money printing. But governments will soon realise that they are not alchemists who can turn printed paper into gold. The consequences of the global financial crisis are potentially catastrophic." He describes an era coming to a close. The era was identified by a grand illusion, that governments through their central bankers could create prosperity from virtually unlimited money creation, vast expansion of debt, and migration away from industry. It will end in disaster. See "Sovereign Alchemy Will Fail" on the Matterhorn website (CLICK HERE).

Von Greyerz makes several key points. Investors have ignored the risks of excessive debt. They have bid up the stock and bond markets, even reduced the important spreads in bonds versus government type. He wrote, "All the so-called experts have declared that it is impossible to identify the problems in the financial system in advance. For example, Greenspan, Bernanke, Geithner, other central bankers, and government officials as well as Blankfein of Goldman Sachs and many bank heads have all stated that they could not see it coming. Either they are lying or they are stupid. Sadly, it is most likely the former... The plight of the US states is just as bad. Out of 50 states, only 4 are expected to have a balanced budget in 2010. Up to 40 states, including California, New York, Florida, Illinois, Michigan, Ohio, North Carolina, and New Jersey, are virtually bankrupt. It took almost 200 years for US Federal debt to reach $1 trillion which it did in 1981. In 2009 the debt increased by $1.9 trillion in just that year to $ 12.4 trillion. In the next ten years the US debt is forecast to reach $ 25 trillion." Debt is accelerating, typical of any bubble. Its finance will be impossible.

The policy choices are all bad, since bankers and politicians (owned by bankers) have backed themselves into the corner. What remains are 'Lose-Lose Options' clearly. Governments must continue to borrow and print money or they can reduce government spending. Each choice leads to ruin. Proposed austerity programs forced upon European nations are better described as Poison Pills, the outcome of which is a death spiral in debts and economic recessions. The travesty is seen with imposed national deficits forced upon Greece, and soon Italy & Spain, below the 3% level. Not one single country within the EU is below the 3% limit versus GDP, not even Germany. And the effect of the austerity programmes will lead to such a major contraction of the economies that tax revenues will collapse, further exacerbating the plight of these countries.

The alternative for governments, within the crumbling European Union and the deteriorating United States, is to print or borrow more money. Against a backdrop of rising deficits, rising unemployment, and persistently insolvent banking systems, they have no choice. The end game will be paved by hyper-inflation, worse than even what is seen today. Von Greyerz wrote, "Both the UK and the US are set upon a course of self-destruction. We will see trillions of pounds and dollars printed in the next few years. But the only buyers of these government securities will be the US and UK governments. The rest of the world will dump their holdings which will result in both the dollar and the pound dropping precipitously and interest rates rising substantially.. The effect of a collapsing currency will be a hyper-inflationary depression. This is the inevitable outcome for the UK and US, and there is sadly no action that the governments of these countries can take to alter this course."

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