U.S. Financial System Systemic Failure Approaches
Stock-Markets / Credit Crisis 2009 Oct 01, 2009 - 05:20 PM GMTBy: Jim_Willie_CB
Debate stirs on whether the financial structure of the USEconomy is broken irreparably. Debate stirs on whether actions taken in the last year or two have put the nation on a path that can even achieve stability, let alone recovery. Debate stirs on whether a pernicious and not so secret syndicate has taken control of the USGovt financial ministries, let alone be removed. Debate stirs on whether lack of US Federal Reserve audits and disclosure of their accounting is integral to sustaining the syndicate control as well as its probable egregious fraud. Debate stirs whether the nationalizations have actually enabled adoption of wrecked assets, have concealed executive ransacking, and have buried massive counterfeit of bonds.
Debate stirs whether the mountainous federal deficits, the nationalizations of essentially Black Holes, and the endless war spending make deficit reduction a distant dream. Debate stirs on whether the gargantuan accumulation of USFed reserves will spill over to produce widespread price inflation. Debate stirs on why after causing the foundation failure of the US financial structure from Wall Street and the USFed offices, these institutions not only remain in power but demand greater power.
It is my contention that the US financial structures broke without any remote potential for repair and revival in the summer of 2007. The symptoms became obvious in the summer of 2008 to the slower observers with visible shock waves bathed in crisis. The reactions from shock waves have come since the autumn months of 2008. The system has broken, but the syndicate in control wishes to keep the music going, keep the machinery turning, keep the money flowing, so that they can continue the massive rackets, bury the frauds & counterfeit, cover their tracks, process the bad paper into USGovt coffers, continue to corner the printing press operations, continue to con the USCongress into granting more funds for Goldman Sachs to dictate dispensation secretly, and to continue the endless war whose rivers of blood are matched only by rivers of redirected private contractor fraudulent payments.
Nobody seeks justice and prosecution for over $1 trillion in mortgage bond fraud. Nobody seeks to remove Goldman Sachs and JPMorgan from control posts at the USDept Treasury and USFed respectively. Nobody seeks even to locate the missing $50 billion from the Iraq Reconstruction Fund, or to announce the known location of the stolen $100 billion from the Madoff Ponzi Scheme (it aint $50B and they know its exact hiding place). Foreigners have been very busy since the autumn 2008, as they dismantle the levers, knock down the pillars, block the escape routes, yank the collateral from the paper marketplaces, and otherwise thwart the US-UK schemes.
To claim that the system can be put on proper stable footing is lunatic. To expect that the nation can be recalibrated so as to return to the Good Ole Days of US global dominance and leadership is lunatic. To urge that the economic signposts, megaphones, and billboards be once again guided by policies best described as Bubbly Economic Mythology is lunatic. Yet delusional Americans actually believe the dominant ship at sea can lead as flagship, when it has taken on more water than the Titanic. Since the autumn months of 2008, marred by the Lehman Brothers failure, marred by the Fannie Mae adoption, marred by the AIG adoption, punctuated by a shameful 0% interest rate policy (ZIRP) and a green light for limitless money creation (QE), the United States has lost any semblance of leadership. Instead, its leadership has earned scorn, criticism, and disrespect. The last people on the globe to comprehend the American condition of failure, corruption, and military aggression seem to be the Americans themselves, who live within the USDome of Perception. They suffer from perhaps the worst education levels in the industrialized world, coupled with a co-opted national news media network, clouded by the grandest drugstore medication in history. Debate stirs on whether the US actually controls its own news media. The US does not cover the global Paradigm Shift underway that will change its landscape radically.
The clearest conclusions center on almost nothing put on a sustainable viable course for the nation. Amplification and widened breadth of all that failed cannot serve as the core for revival or recovery, let alone stability. Yet such policies seem the only ones our hapless bank leaders are able to execute. It is a dog returning to gobble his vomit. It is akin to managers urging their worst workers to intensify their efforts, and to join the ranks of management. These Keynesians cannot admit that the central bank franchise model has failed, not to be resurrected. In my view, the debates, the foundations, and the reactions scream two major messages. 1) The system is out of control, with the drivers ramming down the accelerator for even more of everything that failed, for a locomotive within a monetary system based upon illegitimate money. 2) The USGovt finances are heading toward a recognized failure, identified by both a banking system bankrupt seizure and a USTreasury default.
The nation cannot come to grips with the bold stark notion that foreigners control our fate, from their revolt against the USDollar as a global reserve currency, from their revolt in supplying additional credit to the USGovt and USEconomy. The reaction so far to crisis has been to rely more heavily upon the Printing Pre$$, to monetize the debts, and to conceal such operations, all while permitting syndicates to operate with impunity. The revolving doors spin freely that fill job posts at the USDept Treasury, Wall Street firms, USGovt regulatory bodies, and key foundations, warranting charges of incest at best and corruption at worst. Things are out of control!
In fact, my forecast is for systemic failure. Its primary elements will be a failed US banking system (as in seizure) and a USTreasury Bond default (as in coerced restructure). Again, martial law and declaration of economic emergency will be the final solution. The prison camps will become debtor prisons and warehouses for illegals, maybe a processing plant for those who refuse virus vaccination. They are already constructed with over 200 ready for occupancy. Those in denial might become residents. They could also feature some dissidents, along with some writer analysts. Two years ago, my analysis regularly mentioned martial law and imposed order to handle the chaos from a disintegrated economy and insolvent dysfunctional banking system.
Here we are in the present, when such forecasts do not sound so outrageous anymore. The Jackass has featured a string of seemingly outrageous forecasts that have come true. The US system is credit dependent, and credit will soon be cut off, in the next chapter of isolation. The Printing Pre$$ is a temporary solution, en route to a failed state. The US leaders and citizens do not learn from history. They defy history amidst delusions of omnipotent power. See the Weimar Republic, which has gone global! Even Gore Vidal expects recognition of the Untied States having adopted communism. Even the World Bank led by yet another Goldman Sachs pupil warns the Untied States not to assume the USDollar will remain the unchallenged global reserve currency.
GOLD IS RESILIENT
The true sanctuary is gold, in the face of debauchery of paper money. We see some clear first hand evidence of the ‘Beijing Put’ at work. It could provide a banking system foundation, except that the Gold Cartel and Banker Elite would have to forfeit power, maybe face poverty. Notice the quick recovery. With a slightly lower gold price, the off-take delivery of physical gold has been magnificent, much greater than a week or two ago.
The Wall Street banksters are shocked to learn that demand is not isolated, but rather comes from diverse global sources. The Powerz threw all they could at gold, mentioned some half-baked story about I.M.F. gold sales (more like closure to decade old short sales), and upped the ante of illicit gold futures contract sales (without benefit of COMEX collateral). Notice the moving averages all aligned and rising. Notice the stochastix cyclical index that come down quickly to the 20 low trigger, ready to rise on a quick reload. The response breakout was very typical, seen a million times before. The breakout loses the amateurs and fast traders who miss the big picture. Like a diver off a springboard, the dive commences for a lift upward. The pullback was really miniscule. The recovery was rapid and impressive, in symmetry with the suddenness of the controlled correction. The Chinese are obviously thanking the corrupted Powerz for their paper games, loading on more acidic paper, offering the Middle Kingdom yet more gold bullion at reasonable prices. The Chinese want to maximize their accumulation of gold from the PaperBoyz, at the best price. They do not want a catapult upward in the gold price. They want a gradual controlled price. The Gold Cartel seems extremely willing to accommodate.
ABSENT A STRONG FOUNDATION
Widespread Insolvency is a major theme of the broken condition. The banks have assets and income grossly below their debts and liabilities. They must rely upon phony FASB accounting, which was the basis of the stock recovery beginning in April. They must bring fresh capital, lost as fast as it arrives. They now tell the public what their assets are worth, backwards to any market concept. The households are suffering from mortgage obligations even as housing prices continue to slide lower. With almost one third of American homeowners who hold mortgages operating with an underwater status, whereby their home loans exceed the home value, the army of consumers is more than hampered. Unlike the bankers, the households of America cannot just pound the table, engineer an absurd Stress Test, and declare they are solvent enough for equity extensions. The households line up for defaults and foreclosures instead. The smart ones demand that the bankers prove clear certified title of their property. See the Kansas MERS case that might serve as precedent to jam the gears of the bankers intending to seize homes in foreclosure. The bankers cannot prove they hold clear title. Such is the vagary of mortgage bond fraud, as it seeps to the surface.
The USGovt finances are in shambles, with $1800 billion in fiscal 2009 deficits, and easily $1300 billion to come in the next year. Take away the Printing Pre$$ from the desperate delinquent devils running the USGovt finance ministries, and national debt default would take place within 60 days. The nation does not even contemplate budget surplus, but rather justifies yawning deficits and lies using lunatic forecasts. The industrial base is also largely depleted. The Chinese Most Favored Nation granted in 1999 set the stage for shipment of much of the US factories to China. In the process, the USEconomy replaced income with debt, all in the name of ‘Low Cost Solutions’ moronically. Corporate leaders in America reacted to heavy burdens of government regulations and higher taxes, even to rugged labor unions. Maybe their relocation decisions constituted betrayal, or maybe just reaction to onerous conditions that evolved over decades.
The Albatross of falling property prices, both residential and commercial, continues to hang around the neck of the USEconomy. The full impact of the commercial property decline has yet to be felt, more in delayed reaction. A queer factor comes into play with commercial mortgages and loans. Even if the majority of payments are current, even if most tenants pay rent on time, the loans tend not to be viable for refinance and rollover. The Loan-to-Value ratios are all horrible after a broad 30% to 40% property price decline. Banks require more equity. On the residential side, the Prime Option ARMortgages are lined up for the kill. It seems that payment of less than the required interest was not a good idea after all. It seems that leaving homeowners the option to build their loan balance when property prices fell was not a good idea after all. Now they face 100% to 200% monthly loan payment increases, all in the fine print unread years back. So liquidations and foreclosures will continue to come, complete with outsized bank losses. The Perpetuation of Loss is ensured by continued property foreclosures and liquidation. Despite all talk, the process continues. Despite the pain, the statistics continue to be mangled with a purposeful motive.
The Accounting Fraud for bank balance sheets and stock valuation runs like a cancerous streak throughout the financial sector. The best way to cover up fraud is with more fraud. The best way to cover up accounting chicanery is to have the USCongress bless it as legal, vital, and essential. Once the stock market rose for consecutive months, talk of phony accounting rules is forgotten, SINCE IT SUCCEEDED, even served as proof of recovery. What nonsense! A moral depravity has permeated not just the financial sector, but the public as well. They cry out from the corners laden with pain, but without specific targets. The end of the FASB relaxed rules is scheduled for January 1st. Let’s see if a compromised USCongress and corrupt Wall Street demand its extension. They obviously will. Furthermore, both Basel 2 and Basel 3 guidelines are ignored, since from outsiders. Ignore them at one’s own peril, as they gather as Enemies at the Gate among the USGovt creditors. Theirs might turn into an angry lynch mob. Foreign creditors are the #1 adversary to all things American right here, right now.
SUSTAINING FORCES
Numerous hidden forces sustain the current breakdown and hamper anything remotely resembling a recovery. The only thing in recovery is the banter, billboards, and propaganda. In fact, most praise of success comes from people who praise their own efforts, like USFed Chairman Bernhacky. His predecessor was also very accomplished at praising his own craft and alchemy. Sir Alan Greenspasm left the national banking system hanging over the precipice, from where it fell in a short time after passage of the mantle at his retirement. He believed his housing bubble saved America from disaster. He believed that credit derivatives offloaded risk. Little did he realize that the next disaster is always much greater than the saved previous one, when amplified credit and monetary ease are the solutions relied upon, all pure heresy. He lives now in London, and spends much time in Switzerland. These nations paid his secretive other paychecks. These nations are where his loyalty and all directives came from in my opinion.
Many hidden forces will work to undermine the current efforts to instill a recovery to the USEconomy and a resuscitation of the US banking system. Bernhacky will soon realize that reliance upon the same toxin and formaldehyde to course through the increasingly cancerous bodies will produce even worse problems during the next crisis phase. It comes.
Numerous sustaining forces will contribute toward the inexorable path to systemic failure. It will begin with the relapse failure of the US banking system. Citigroup is facing real bankruptcy, whose numerous segments are underwater and growing worse. Bank of America is in a death spiral, whose CEO Ken Lewis departs amidst political and shareholder legal pressures. Wells Fargo is so dead that its true balance sheet makes a skeleton come to life, whose prime Option ARM and second mortgage exposure is monumental. Maybe Citigroup, BOA, and Wells will use USFed funds to acquire the entire US banking system and subject it to their brilliant acumen, leadership, and access to the corrupt money pits. Lock in those executive bonuses!
The hidden housing inventory will ensure that housing prices continue down for a couple more years. At best they will stabilize somewhat, but only if a monumental hidden housing inventory is permitted to accumulate. The big banks, the very same that abused mortgage bonds with leveraged instruments, own an outsized supply of foreclosed homes. What a fitting reward! They tend to release only a portion of this home supply, so as to permit some price stability as demand catches up. Lenders are reluctant to lend though, even while the foreclosure process continues. Job loss is the main driving factor, amidst household insolvency.
The Zero Interest Rate Policy is worn as a badge of shame to reflect central bank failure. It rewards savings not at all. It encourages the same speculation that produced bubbles to kill the banks and households. It encourages a Dollar Carry Trade, which ensures a pressured decline in the USDollar itself. The October Hat Trick Letter will discuss additional risks and dangerous consequences from the Dollar Carry Trade. Remember, Bernhacky assured the USCongress, the US conferences of economists, and the US people that the USFed would not resort to 0% rates. He did just that. In addition to powering with leverage the US$ exchange rate downward, this carry trade takes away a viable Exit Strategy for the USFed. Imagine Wall Street leveraged speculative machinery interrupting any potential lift in the official US interest rate! Recall that the USFed does take orders from the Wall Street syndicate. They selected him. They hired him. His job is to run the Printing Pre$$ day and night, to invent new liquidity facilities, to preach solutions to the USCongress, to shut up, and to follow orders. In the last year, the USFed has acted like it is the entire banking system. What exactly is the exit doorway to take from that strategy?
Without hesitation, one can claim that No Meaningful Reform or Restructure has occurred. The US financial and economic structures continue to suffer from precisely the same problems that resulted in systemic breakdown in the autumn months of 2008. The difference now is that the previous high volume of acidic money is exceeded with higher volumes now. USGovt debts are now much higher. Lending institutions are less prone to lend now than one or two years ago. Commercial paper used not to flow at all, and now flows but with less volume and from fewer channels and with more USFed assistance than ever before. Innovative thought is totally suppressed, if not crushed. Advocates for a reformed system without paper fiat money are dismissed. The syndicate continues to ply its trade and to control the levers. But their work is frenzied, and they are sure to lose control.
No meaningful reform comes even to the hundreds of thousands of mortgage loans that undergo Home Loan Modification. They cannot alter the loan balances, since that would require alteration of the associated mortgage loans that rely upon income stream from loan payments. This is not acceptable, since it would reveal the pervasive bond fraud, the counterfeit bonds, and the duplicate usage of home loans in multiple mortgage bonds. So solutions come to toss billion$ at the big banks, without solution, an assuredly failed Top-Down approach that appeals to Wall Street. The extort the money and hide the paths of funds. Also, on the small business front, the restructure of the Small Business lender & insurer CIT failed to produce any meaningful revitalization. Its June debt restructure agreement with bond holders failed to stick. It now seeks a $5 billion loan as debtor in possession. A million businesses would be affected if CIT folded and was liquidated. We are told of a recovery in progress. Its roots are in propaganda, crowd control, and shaping of public opinion. George Orwell would smile and smirk from his 1984 address on Cemetery Lane.
No national initiative has come to bring back US industry to the US shores. No national initiative has come to retain businesses by means of reduced taxation and reduced regulatory burdens. No national initiative has come to remove from power those responsible for Wall Street bond fraud. No national initiative has come to even force a proper accounting to Wall Street firms or Fannie Mae or AIG. No national initiative has come to conduct a true autopsy of Lehman Brothers, like to see what assets they held, what hedge funds they sponsored, what counterfeit Fannie Mae bonds they were soon to toss onto the table, and whether JPMorgan did indeed pay off private Lehman accounts with the $138 billion in slush funds. The booty was handed to them at a bankruptcy court meeting held before dawn on an September Saturday morning. No national initiative has come to force disclosure of the TARP fund distribution, or to reveal what the USFed does with its trillion$ of created money. They destroyed the USDollar, and the victims enduring the crisis from inside the USDome need to know. Without hesitation, one can claim that all attempts to shine light on the financial sector and its ivory towers have been obstructed.
Two further factors ensure the sustained crisis in the USGovt finances, with certain continued contagion to the financial sector and the tangible economy. The Endless War with its increasingly less credible banter against terrorism drains the United States of funds, saps its national spirit, cripples its soldiers, and extends risk in countless ways. The USDollar and USTreasury Bond suffer from lost foreign confidence and faith. The real threat to national security lies in the finance sector rooted in Wall Street. Almost all talk about foreign threat is a grand distraction from the internal threat, even as incredibly grand fraud is committed in the name of patriotism. The Entrenched Financial Syndicate remains in power, controls all financial policy, directs funds from the Printing Pre$$, influences the USCongress with slush contributions, controls regulatory body heads, engineers nationalizations of fraud-ridden financial firms, interferes with FBI investigations (see the GSax trading software), integrates with foreign policy, and provides segments to the US press networks. Fully 70% of US press network content comes from the USGovt and its myriad agencies with spokesmen and public relations offices.
FAILURE & DEFAULT ON THE HORIZON
Going hand in hand with the destructive 0% policy is the Hidden Monetization of USGovt Debt, clearly. The zero rate encourages new asset bubbles, like the historically unprecedented spectacular USTreasury bubble. USTBONDS MAKE THE FINAL BUBBLE. The zero rate enables new carry trades with no cost. The zero rate permits a private banker party to engage in their own corner carry trade, buying long-dated USTreasurys with free money while shorting the short-term USTBills. This acts like a money machine for bankers to restore their balance sheets. The only trouble is their balance sheets have a hemorrhage at work, with additional ongoing relentless credit portfolio losses. The accounting fraud can only mask the problem, which happens to grow worse with each passing month.
With lost integrity from the 0% rate comes disdain for the monetary system generally and for the USDollar specifically, along with other major currencies locked near 0% also. INVESTORS TURN TO GOLD AND SILVER, the proven sanctuary during crisis.
While the 0% official rate creates problems much like those that erupted in a crisis, the monetization of debt issuance signals to the entire world to abandon the USDollar. The monetization assures the death of the USDollar. It is Weimar revisited, but with more military might and far more arrogance. Megalomania gone awry results in catastrophe. Monetization represents back-door devious measures to stave off the disaster of bond auction failures. Monetization is a broken promise made to creditors, who must feel betrayed. Monetization is a vast undermine to the validity, value, and very authenticity of a currency.
The government debt for the custodian to the global reserve currency is being monetized, thereby creating gigantic air pockets, and funding a carry trade. The most dangerous asset bubble on the planet right now is the USTreasury. It pays 0% on short maturities. What is next? The forced USGovt worker pension contribution to USTreasurys? How about all state workers too, in their pensions? Maybe eventually all 401k and IRA and Keough pension plans as well, in their pensions? Every citizen maybe support the USTreasurys in pensions, out of patriotism, for national security? With lost integrity from the monetization patterned schemes, comes fear of a repeated Weimar hyper-inflation episode. INVESTORS TURN TO GOLD AND SILVER, the proven sanctuary during crisis.
What comes is the US bank system failure. The endless rounds of bank credit portfolio losses dictate it. The Stress Tests are soon to be discredited, less than one year after their farcical production. The leading losers will be commercial mortgages, prime Option ARMortgages, and credit card losses. Banks are not prepared, having inadequate Loan Loss Reserves, guarding their profits, denying their reserves, managing their stock prices. They deceive their share holders on continued portfolio risk. They try to shove all their garbage assets on the USFed and to Fannie Mae under the USGovt roof, amidst the shrill cries of ‘Too Big To Fail’ nonsense. A US bank system failure is coming. With lost integrity from the banking system, insolvent in its own core, supplanted in function by the USFed itself, lending so little as to force declines in the consumer credit funds, comes distrust of financial institutions generally. INVESTORS TURN TO GOLD AND SILVER, the proven sanctuary during crisis.
INDIVIDUAL NOTES
See the King World News series on ‘Systemic Failure’ in its four parts (CLICK HERE), where the Jackass is interviewed, complete with some anger and emotion. The first and second segments are to be posted before this weekend of October 3rd and 4th. The topic is this article itself. Two additional segments will be added on the following next two weeks. The King World News has had a stream of stellar guests from the highest tiers, that recently included Jim Sinclair, Gerald Celente, and Chris Whalen. See their front page for numerous interviews (CLICK HERE). They slipped in the Jackass to kick up some sand, and to add spice.
As always, avoid the Exchange Traded Funds of StreetTracks Gold (GLD) which is a near complete fraud with grossly inadequate physical metal. They are involved in COMEX fraud to cover paper futures gold contracts. Much the same fraud is committed by the Barclays ETFund for Silver (SLV), with wholly inadequate silver metal. Neither fund submits to independent audits. My personal preference is to invest in silver, but to use gold as the signal. The rise in silver price will be 3x to 5x that of the gold rise, which itself will be significant. Central banks sell no silver, and industry has almost no gold demand. Let gold fight the political battles, to clear the path for precious metals to rise in price to the heavens. Inquiring minds should take this cue on how to buy silver, or one should check the Run To Gold website (CLICK HERE). “The Great Credit Contraction” e-book by Trace Mayer will serve as a classic someday, where this legal scholar claims the system will not collapse, but rather will evaporate. My term is disintegrate, very similar.
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by Jim Willie CB
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