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Southern Europe Permanently Crippled, The Only Tool Left is Hyper Inflation

Economics / HyperInflation Jan 20, 2012 - 11:24 AM GMT

By: Jim_Willie_CB

Economics

Diamond Rated - Best Financial Markets Analysis ArticleAny perusal around the world these days features Southern Europe crippled, preparing for the inevitable Greek Govt Bond default. It features a crippled US housing market, a mockery of statistical accounting in the US Gross Domestic Product, the plight of the COMEX with established veterans clearing out desks (not trading), the extreme physical demand reported by the London Trader, and the indictment of the SLV iTrust Silver Fund tool used by the cartel. The survey does not look favorable toward stability. The banking, economic, and political leaders have not pursued reform and remedy in any remote sense.


Their only tool left is hyper inflation. The central banks of the Western nations have coordinated Global Quantitative Easing, as the USFed concealed its own QE3. Operation Twist was an enormous ruse, to cover the grand disposal sale (dump) by USGovt creditors and maintain a semblance of stability in the USTreasury market. The global financial crisis continues for a simple reason. No financial reform or remedy has been attempted, only bank-owned bond redemption and colossal aid to the financial sector that controls government ministries and law enforcement. Therefore, the crisis hurtles toward a series of climax events. The Chinese are accumulating physical Gold still in a big way. US finance minister, the diminutive Geithner admitted to the Chinese officials that the USGovt has no more tools left with which to stimulate or lift the USEconomy and its fumbling financial sector. An honest admission, except that hyper monetary inflation remains the all-in-one tool.

The Greek default could trigger some grand unintended consequences. Despite all the planning in the controlled event, likening it to the demolition of a 50-story hotel in an urban center, the better image might be to attempt to hold within a corral 500 cats released from a large truck. In no way can the technocrats, central banks, and bank officials contain the animal spirits coming. The only solution in the end will be the most massive hyper inflation project in history. They must recapitalize the broken banks of Europe, where fallout will surely extend in non-trivial manner to London and New York. Two major pressures will work to lift the Gold & Silver prices. The Commitment of Traders report on commercials points to a significant sequence where they covered their Gold shorts and Silver shorts since the summer months. The road is prepared for a big rise in price after some closing notes are played on the Dollar Death Dance. Details are seen in the January Hat Trick Letter. Also, the acute financial crisis in Europe and the West in general demands some important decisions to manage the Greek default. Look for talk of a monetary solution but action perhaps in a vast recapitalization program for the big banks. A footnote, the Citigroup earnings included a $1.5 billion release from their Loan Loss Reserves. The funds will be needed to cover bond impairment and mortgage related lawsuits. They also had a nice bump in the Credit Value Adjustment, a blatant accounting fraud that exploits gradual impairment to their own corporate bond value. Accounting for banks is a farce.

SOUTHERN EUROPE PERMANENTLY CRIPPLED

Although the entire southern rim is deeply affected, a look at Italy is telling as a microcosm of continental illness. Italy has imposed capital controls on the banks. Movement of funds is being closely monitored. Money cannot be withdrawn in volume at the bank windows. Borders have cameras and registries at the customs checkpoints. Italy has gone fascist with blazing speed, the most blatant indication is the installation of Monti as prime minister. Its banks are ready to capsize, like the cruise liner. The effects of the Fascist Business Model are being acutely felt in Italy. Nothing goes without monitor. The credit card companies must report to the fiscal authorities all transactions carried out by Italians, in the country and abroad. Limits have been imposed on bank withdrawals of 10,000 Euros, equal to US$13,000. Cameras have been installed by finance police at the border checkpoints with Switzerland to register all license plates. In addition, currency sniffing dogs have been deployed at the border. The Monti regime can be seen imposing Fascism, plain and simple. Their opening salvo was to attack private capital by raising the capital gains tax. The situation is degrading rapidly. The wealthy of Italy have a new game in removing money from Italy and to escape themselves.

The irony is thick, the tragedy stirring. The Italian cruise liner Costa Concordia went aground, a fitting symbol of the nation of Italy succumbing, a toppled elected regime in a sea of liquidity. Individual decks named after nations went underwater, liquidity of a different type. Parallels between the financial structure and ship structure, along with perceptions and reactions, are interesting. People believing such an accident as incredible in the 21st century need to awaken to reality on the mainland. Italians will make the same comments when their banking system collapses, in the wake of their elected political leadership being dismissed from the helm. The cruise liner was badly off course, as the captain changed paths to salute friends on the nearby island (mistress?). So is the Italian banking sector, hardly alone as the Spanish fleet of banks is also off course, taking on water, the banks derelicts at sea.

The ship crew was not trained for such accident, having advised passengers to return to their cabins incredibly. Neither is the Italian system prepared to handle rough waters, given the most egregious nepotism in all of Europe. Half of million gallons of fuel are being retrieved before salvage operations begin, in an effort to avoid an environmental disaster of contaminated beaches. Contrast to the toxic paper running through the Italian banking system. The ship's insurers may be liable for total costs of about EUR 405 million (=US$500 mn) as a resuilt of standing policies. Unlike the ship liability, the Credit Default Swap contracts, the debt insurance flagships, are forbidden to kick in for awards at docks. The ship's problem might be more low hull draft and high center of gravity ship design, much like the inefficient stream in Italian business practices and the high bank leverage.

THE BIG EVENT IN GREEK DEFAULT

Any bank or credit analyst worth his or her salt expects a Greek Govt Bond default. The event is inevitable, unavoidable, and a certainty. All solutions to date have been patchwork applications of tourniquets and needlepoint stitching, with full acquiescence to the banker class. The concept of a new Euro Bond to supplant the toxic bond is ludicrous, which exhibits the ignorance of the central bankers on conceptual constructs pertaining to monetary matters. The concept of a leaning upon the Intl Monetary Fund for a grand issuance of Special Drawing Rights is again ludicrous. A basket of water-logged debt-soaked currencies does not make for a viable raft to float any bodies in any seas. The contagion from a forced accord on Greek bonds will have a notable fallout value effect to Italian bonds, even to Spanish bonds. If the accord ignores the effect traveling with light speed to Italy, the plan is doomed from the outset. The default in Greece should trigger a Credit Default Swap event and award payments. But decisions might follow the trend seen to date, where contract law is trampled upon. The supposed redefinitions of debt securities were a travesty, not yet sufficiently challenged by the legal warriors and the court system. Then consider that the biggest creditor to Italy lies within the major French banks. A likely collapse of French banks in the wake seems the path that nature will take.

The contagion would spread to the London and New York bank centers, where insolvent hollow banks have stood for three years. They have long lost their credit engine role, thus the economic stalls in reverse gear. Lastly, any solution, apart from a new monetary system, must address the dire need for recapitalization of the Western banking system. The accord must begin with Europe. The accord must begin with $2 trillion or more to rebuild banks. A figure of $5 trillion is floated. The accord must dispose of the entire sovereign debt and its toxic paper from Southern Europe. Expect the greatest event in modern financial history before too many more weeks or months, the sovereign bond default and bank recapitalization. The impact on the USDollar could be profound and life altering for the planet. Expect unfortunately for half measures that sidestep any new monetary system and proper role for Gold. The half measures in the accord will bring great new attention on Gold, which should be at the core of the solution, both in the currency and banking system.

U.S. HOUSING PERMANENTLY CRIPPLED

The US-based shadow home inventory is vastly larger than estimated. The bank owned inventory is enormous, but so is the variation in those estimates. What is certain is the vast overhang of home inventory held by banks, and the steady flow to replenish the hidden inventory tumor, prevent any bottoming process to prepare for any recovery. Accurate housing data is hard to come by. The housing crisis is arguably a national emergency, which crushed both the banking system and the USEconomy. The USGovt-owned Fannie Mae still prevents the public from gaining access to loan data in detail, probably because multi-$trillion fraud is buried. It is far too difficult to obtain data from Freddie Mac also, and the MERS title database remains a black hole. My Jackass loose estimate has been tossed around frequently of one million bank owned homes in inventory, unsold, hanging over the market, rendering clearance and stability an absolute impossibility, with more home seizures always in the pipeline. The market cannot digest such an overhang, and cannot stop the price decline, especially since new foreclosures keep the flow into REO bank inventory. Banks refuse to clear their inventory, and are encouraged to hold that inventory since 0% financing is offered by the USGovt. If the shadow inventory is much larger than one million homes, then housing prices have much farther to go before they hit bottom, which has dire consequences for communities, homeowners, and the broader economy. It also means the US banking system is deader than dead.

On December 21st, less than one month ago, HousingWire reported that CoreLogic projected shadow inventory to be 1.6 million homes throughout the entire United States. Definition of a shadow inventory property varies widely. For example, the Wall Street Journal published an article last November, in which inventory size varied from the CoreLogic higher estimate to about 3 million by Barclays Capital. Other estimates are approximately 4 million by LPS Applied Analytic, roughly 4.3 million by Capital Economics. But the highest calculation comes from the source of most impressive methodology. Laurie Goodman of Amherst Securities offers the estimate of between 8.2 million and 10.3 million homes. Hers is regarded by many experts as having the most carefully crafted model, despite being the most dire of estimates. Michael Olenick of Naked Capitalism has his own large reliable database. He has been on the job in analyzing liability to taxpayers, investors, and banks. He submits his assumptions in calculations, an honorable practice based in integrity. The Olenick analysis arrives at a total close to the Goodman range. Using a more narrow definition of what constitutes shadow inventory, he estimates 9.8 million homes are in bank inventory, or suspended animation within the system, waiting for liquidation, suppressing price further. Long past critical mass, only radical out-of-the-box solutions will work. Massive loan forgiveness is the only solution, but it will never be done. USGovt ownership of one quarter of American homes is more likely. Conclude as inevitable that the nation will soon face widespread bank failures and even more staggering loss in home values, since the overhang of home inventory will force home prices down another 20%, my ongoing estimate that has been repeated and repeated ad nauseum. The problem is so great that the mortgage bond market can no longer be described as having viable parties and counter-parties. Too much bond counterfeit. Too much duplicate income streams used in mortgage bond securitization. Therefore, the principal parties do not want liquidations or scrutiny. See the Naked Capitalism articles (HERE).

U.S. GDP CALCULATION A TRAVESTY

Grossly Distorted Procedures on GDP calculations must be explained. Both hedonics and imputations contribute to one third of the entire reported Gross Domestic Product. The Chinese have long complained that half of the US GDP is mythical, due to interchange of debt paper across desks. The USEconomy is a fraction of its stated size, and it is stuck in chronic recession. A big hat tip to Michael Shedlock, whose analysis is excellent in focused economic sector topics. He provides an excellent overview on Hedonics and Imputations, to reveal their corruption of thought, whose concoctions he labels Grossly Distorted Procedures. Shedlock wrote, "Hedonics is a way of accounting for the changing quality of products when calculating price movements. For example, today's computers are 2 to 3 times faster and have more memory than models produced just a few years ago. If someone can buy a better computer today than last year for the same price, have not prices really fallen? Here is another example. Is it realistic to compare the price of a 1955 Chevy with the price of a 2005 Toyota with air conditioning, DVD player, anti-lock brakes, seat belts, air bags, side air bags, power steering, power brakes, etc? To say that cars have gone from 1955 prices to 2005 prices and calling the ENTIRE rise inflation is obviously wrong although many inflation alarmists do just that. Sorry folks, but that is not a straight up valid comparison. Would you be willing to drive to work a Model T ford today? If not, then comparisons of car prices today versus 1920 or 1950 or whenever are pretty absurd."

The USGovt makes unilateral decisions on value, in order to offset the rise in production costs from energy and materials, even labor. They justify their methods by pointing to manufacturing efficiency and economies of scale in production. They use the falling technology prices as justification for other abusive methods to reduce prices from inherent value on features which actually are subjected to strong price pressures. Shedlock rightfully points out how the potential greater hedonic abuse has entered into methods applied to the Gross Domestic Product, a mainstay not to be cut out. The accounted size of the USEconomy is subjected to vast distortions in the calculations. As the measured price inflation is kept low by force, the estimated GDP result is lifted higher by the same force. The lie in the CPI has been 6% to 8% for the last few years. That means the GDP has been running consistently negative in the most profound and harmful economic recession in American history. My analysis relies upon the indefatigable work of the Shadow Govt Statistics group. They measure the GDP as one quarter versus the same quarter a year ago to demonstrate a clear downward trend, a chronic recession. Conclude that the US GDP has been in decline by 4% to 6% for consecutive years. Shedlock has reported by means of Bureau of Economic Analysis data, that the US GDP is artificially lifted by a whopping $2.257 trillion in hedonic adjustments, equal to 22% of the entire GDP. That portion of the US GDP is pure myth. The United States is the only major country that hedonically adjusts its GDP, or needs to. The USEconomy is among the weakest in the entire industrialized world from industrial gutting and chronic consumption and pursuit of asset inflation.

The other major abuse is Imputations, a part of GDP calculation that the USGovt fabricates in estimated value where no cash changes hands. The imputation derives from homeowner self-paid rent and checking account services. These are pure fairy tale absurdities. For example, homeowners are assigned an imputed rent, that they pay to themselves as though renters. The BEA treats homeowners as businesses, which pay rent to themselves for the service of shelter. Be sure to know that mortgage payments and property taxes are also accounted for, a double counting process steeped in corrupt accounting. Self-paid homeowner rent tallies a ripe $153.8 billion in imputed rent as part of the GDP calculations. There is more. Free checking account services from banks are not to go without abuse. Self-paid check account services tallies a ripe $335.2 billion in imputed bank services. The beneficiary is in Personal Income data reported by the clownish USGovt stat labs.

Shedlock has reported by means of Bureau of Economic Analysis data, that the GDP is artificially lifted by a whopping $1.635 trillion in hedonic adjustments, equal to 13% of the entire GDP. Shedlock cites the total fabrication folly was a staggering 35% of the reported US GDP in 2003!! See the Global Economic Analysis article (CLICK HERE).

SIMPLE EVIDENCE OF RECESSION

US-based railway traffic is down hard, contradicting the vacant claims of an economic recovery in the United States. The slowdown is across North America, the worst brunt felt in Mexico. The Assn of American Railroads reported intermodal volume for the second week of January totaled 193,812 trailers and containers, down 9.3% versus the same week last year. The Eastern half of the nation was notably slower. The slowdown is across all North America. Canadian railroads reported cumulative volume of 40,281 trailers and containers for 2012, down 9.8% from last year. Cumulative volume on Mexican railroads for 2012 into only January is 10,857 carloads, down 15.2% compared to last year. Conclude that North American is in a severe deep recession, with the worst brunt felt in Mexico. Talk of recovery is Orwellian in its deception. My favorite data series to demonstrate recession is the USGovt payroll tax withholdings. They continue in decline. It is a pure series without adjustment. The USEconomic recession is the New Normal, Mr El-Erian.

CORROSIVE COMEX DRYING UP

Ann Barnhardt confirmed the COMEX is going into obscurity and irrelevance. Players are exiting. Risk of theft is perceived. Trust has gone. Metal inventory will vanish next from honest players in retreat, seeking more legitimate arenas. The normal methods of risk hedging are going away, turning to private means, or quitting altogether. Ann Barnhardt made a huge splash last month in her decision to shut down BCM Capital brokerage firm, for fear that client funds were at great risk of theft. She outlines many carefully laid points. Here are some of her main points with fortified evidence. Notice the point about high frequency trading, which indirectly indicts the GLD & SLV (gold and silver) funds, whose inventory is likely connected to futures arbitrage schemes, as their bullion metal is drained. Notice the perceived spread of futures hedge exposure at the market peripheries. Barnhardt compared events of MFGlobal and JPMorgan to economic treason and betrayal of the American system. Here are some of her main points.

  • The futures markets are withering and dying on the vine, as business is totally evaporating. Many explicitly state that they are done trading and hedging with futures, both speculators and hedgers.
  • The volume increases in recent months were due to the veritable fungal infection of the market that is the high frequency algorithm trading systems.
  • Nobody in the trading pits believes the statistics that come out of the USGovt or the Federal Reserve. Anyone who believes them must be mentally disabled (her words).
  • Exposure to futures is itself contagious. If producers enter into a private treaty forward delivery contract with a grain elevator or a feedlot, they would still be exposed to the futures market, and to the risk of a futures market collapse, or even just another wealth confiscation. If any contract participant utilizes futures contracts in risk hedge, all parties are exposed. Even private treaty forward contracting is exposed, since someone along the line laid risk off on the futures market.

LONDON TRADER

The London Trader is back with more splendid bountiful information, sharing volumes behind the veil of anonymity. The paper thin COMEX must react to gigantic physical demand, he reports in a recent interview. The staggering Gold demand is creating great shortages in the physical market. Here is the shocker, although it should not come as such a surprise. Compliance departments have widely banned participation in the COMEX anymore. It is drying up as a market. The Chinese have exploited the lower Gold price that resulted from the European distress and the American accommodation. They have grabbed huge physical supply. The anonymous London Trader pitched in a full month after the MFGlobal crime scene cordon tape has been overrun. He opened by describing a compressed coiled spring in both the Gold & Silver markets, from huge physical demand. He actually described the COMEX as no longer a credible marketplace.Gold represents power and the Eastern Hemisphere is gathering in that power. The displacement of Western Gold to Eastern vaults is a major symbol of the Western decline. Here are some of his extreme comments that portray a system entering a collapse phase.

  • The Big Banks are trying to defend their massive short positions, like with 25 million SLV shorted shares. To meet the silver delivery demands, the cartel is borrowing heavily from the SLV, which will be gradually drained of metal in inventory.
  • The panic in Europe with a broken system is creating huge Gold demand. The demand for Euro Gold in London is so intense that it brings shock to some veterans. It is creating grand shortages for metal in London. The physical Gold market is being exhausted by European Gold buyers.
  • The COMEX paper discovery price system has become a joke. No serious players interested in taking physical delivery use the COMEX anymore.
  • Since the CME did not backstop the MFGlobal clients, entire Compliance Departments prohibit usage of the COMEX. International funds and hedge funds starting in January will go elsewhere, and thus avoid the COMEX.
  • Expect a powerful move once Gold rises above the $1650 level, as shorts cover in open fear. Above that point look for a very large tranche of unfilled wholesale orders to push the price a lot higher with their bids. The Chinese are Gold buyers at all these prices, $1600, $1700, or $1800. They are buyers, never sellers, and public stories pure nonsense about their retreat.
  • The Chinese have recently taken another roughly 150 tons away from the Western central banks. The Western central banks essentially donated that Gold in an attempt to prop up their paper currencies. They have exploited the recent pushdown in the Gold price. The Chinese are using Gold accumulation as an indirect maneuver to introduce the Yuan (remninbi) to center stage.

INDICTMENT OF SLV i-TRUST SILVER FUND

The SLV exchange traded fund is drained of silver bars from the back door. Numerous blemishes can be identified. The fund cannot stand scrutiny. It is one of the most effective criminal fraud vehicles ever designed. Thousands of investors have been duped, buying what they believed was physical gold & silver, when they have aided the cartel in suppressing their prices. Their inventory is routinely raided from custodial shorting practices that have become glaringly clear in recent months from simple tracking of inventory and short interest. The SLV fund, formally called the iShares Silver Trust, contains much slippery language in its prospectus. The SLV provides funds for itself and custodian costs (managed by JPMorgan) by selling bullion, from the same fund. They actually achieve a benchmark price target for silver based upon their own sales. Their prospectus carefully states that the SLV share price reflects the value of the trust's silver holdings, NOT the spot silver price. It is a circular practice of self-fulfilling price achievement in suppression efforts.

BrotherJohn gives the excellent analysis in clear understandable terms, with focus on SLV fund shenanigans. A big hat tip goes to him. The SLV fund does not hold sufficient silver bars to correspond to all shares outstanding, but that fraud is carefully permitted under its prospectus and current legal structure. Track the shenanigans in a fine classroom style forensic analysis in YouTube video form by BrotherJohn (CLICK HERE). He covers a wide range of topics. Here are some of his main points. Adam Hamilton, are you paying attention?

  • The SLV fund has 300 million shares, each worth one ounce of silver, valued at almost $9.0 billion. But it has over 25 million shorted shares, or 8% of the float.
  • The practice of shorting SLV shares keeps the Silver price suppressed, enabling inventory raids from the fund. Around 25 million shares are short on SLV. Any suspicion that JPMorgan is the predominant party holding short shares would probably be correct, the shares provided by Bank of America, which owns a surprising 22 million shares, always a willing player to help push down the silver price.
  • The SLV fund rigs their own market, pushing silver to a desired lower price. In fact, the number of silver ounces per share is falling consistently, just over 0.97 oz in recent weeks. Check out September 30th, when the silver price fell hard from 40 to 30 per oz. The SLV fund had numerous big sellers that day in their listing.
  • A smoking gun is revealed on May 5th, when the silver price was busy falling from 48 to 34 per oz. The SLV fund had a single day volume of 300 million shares on that day in May, equal to its entire float. Conclude that naked shorting was taking place in coordinated fashion with a leveraged arbitrage between the fund and the COMEX using futures contracts. Leverage must be involved. Many fingers point to such arbitrage since the volumes are so great.

The lessons and signals are vividly clear. Purchase and invest in Gold & Silver bars and coins, the mainstay for financial survival and avoidance of debt serfdom. The crisis is working toward a series of climax events stretched over the next year. The outcome will be shocking. The events will awaken the masses finally, who are all too often perplexed and dismayed while many place their heads in the sand. The Gold & Silver prices are heading multiples higher. Efforts to confiscate by government will in all likelihood backfire, raising attention, pointing out value.

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by Jim Willie CB
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