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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Credit Crisis Shock Wave Hitting US Economy, Bonds and Stocks

Interest-Rates / Credit Crisis 2008 Sep 05, 2008 - 04:41 PM GMT

By: Jim_Willie_CB

Interest-Rates Best Financial Markets Analysis ArticleSomething big this way comes. Events will center upon the arch-nemesis of gold, the US Treasury Bond. Market interference is too huge, for bonds, for bank stocks, for the entire financial sector. Banking system structures are too broken. The pillars of the US Economy are all in deep trouble, with profound deficits and insolvency the rule of the day. See the USGovt federal deficit (growing fast), the trade deficit (chronically large), the housing negative equity (worsening gradually), and insolvent banks (worse each quarter, despite the denials). A massive shock wave is coming. In all likelihood plans are in place, with events already set in motion, as the plan is probably to be event driven.


Their objective is to disable the US juggernaut, whose principal parts are a fraud centrifuge with numerous supporting mechanisms, and an aggressive military machine with key banking supporting mechanisms.

In order to disable, derail, and bring a halt to abuse by the US leaders in banking, politics, commerce, and military, the foreigners (not just perceived enemies), have turned their attention to the Achilles Heel. Timing is critical, probably centered at the US presidential election, or events aligned for its distraction. Details on a possible scenario are to be found in the September Hat Trick Letter, which will be of a simpler more succinct format this month. Typical information flow and usual analysis seem out of place. Like with the US system of schools and business, the new year starts in September. This will be a strategic report.

Geopolitical risks have raised to crescendo levels, as powerful enemies are angry. Given false news reports, the United States leadership and population seem incredibly confident and complacent, a big risk. They fail to see the significance of events in Georgia and all along the Russian border. Be sure to know that the economic decline and faulty foundation found in numerous AngloSphere (US, UK, Australia, NZ, Ireland, even Canada) systems has a backlash coming, which will propel some of these nations into Third World status, or vassal positions under Chinese rule, even ignored backwaters.

GOLDEN NEMESIS IS VULNERABLE

A blowoff top appears evident in the US Treasury complex. The US Economic recession is accelerating, with confirmation in the bond market. That statement might sound contradictory. An assumed 1.3% price inflation for Q2 was required in order to concoct a goofy story of 3% Gross Domestic Product growth. The US is in much worse shape than any major continental economy, bar none. If the phony GDP figure were believed, the S&P500 stock index would not be challenging at a multi-year breakdown. Press reporting of the US Economy has grown more distorted than ever before to support the US system. In fact, the US financial system resembles a gigantic fraudulent syndicate ring system. The irony is that exported bond fraud in past years has been followed by tin-cupping this year so as to secure replenishment funds to stave off bankruptcy. Integrity of US financial firms is at rock bottom, inviting foreign reaction.

My position is that JP Morgan stands at the center of the syndicate ring, starting with Enron involvement in 2000, extending to Cantor Fitzgerald involvement in Sept 2001, and now with Bank of Baghdad involvement in processing clandestine Afghan funds in clearinghouse operations. JP Morgan might be the center of the money laundering operations that have kept Wall Street banks afloat for years. Anyone with connections to financial officers to these firms considers this information to be basic.

This US structural system has a vital channel. The bankruptcy of America is the story of the year, as 2008 is the year the system breaks. The crowning blow is the exported bond fraud, its lack of prosecution within the US , and the exclusion of US banks and some corporations from the planned ‘Post-US World' underway. Numerous summit level conferences where important commerce and banking agreements have been recently forged on several continents, all having excluded the United States from participation. Big movement is seen in the US bond market. Foreign central bank intervention has accelerated in the last several weeks. The 10-year TNote yield is at the 3.6% level after hue & cry of price inflation all through spring months. NO SURPRISE HERE! We might be seeing a double top failure in the long-term USTreasurys. The historical chart bears this out more clearly.

Along with a US Treasury rally has come a giant swap trend, as foreign wealth centers have traded out US Mortgage Agency bonds and into USTreasurys, adding to the blowoff top. Some foreign entities are openly requesting bailout redemption of impaired bonds. All corners seem to be hunkering down into USTBonds as a safe haven. The risk of an actual default in USTreasurys must be taken seriously, in view of upcoming intentions, however unwillingly executed, to nationalize everything under the sun inside the US landscape. The natural nemesis in financial markets for gold is the US Treasury Bond. New supply puts it at great risk. The printing press with raised lamination will produce huge US Dollar output soon. Nationalization demands it. The consequent risk to the US Dollar and US Treasury Bond is deep, profound, and stark!

FAILURES & STRESSES

As the US Economic recession has taken grip, capital gains tax revenues and payroll income tax revenues are way down. Almost no specific story supports the growth story told. Even the export trade will be tripped up by global slowdown. The USGovt federal budget deficit will be enormous, even without the nationalization demands.

The collection of sectors seeking imminent bailouts in the nationalization theme include Fannie Mae & Freddie Mac, General Motors and Ford, Wall Street banks, and some airlines. Add to that demand some staggering funding requirements for the Federal Deposit Insurance Corp (covering failed bank deposits) and the Pension Guarantee Fund (covering failed corporate pension funds), to raise strain to a crescendo. Did PIMCO actually hint they wanted a bailout too? Of course, never overlook the sacred military budget demands, never to be challenged or reduced, but always adding great USTBond supply.

During the past two decades, foreigners have accumulated gigantic USTBond holdings. Now finally, too many foreign enemies hold huge amounts of USTBonds, a risk my work has mentioned steadily. The US no longer controls its destiny. The risk to sovereignty has built to a point of recognition as capital sale replenishment deals abound, a frequent occurrence for big banks. The US Dollar is rallying when its financial condition is imploding. The driving force for the deteriorating crippled US condition is the housing decline. Just today, more dreadful home foreclosure and delinquency data was released. The story of US relative strength is absurd on its face, and yet another important chapter in the US Economic Mythology treatise. Such a contradiction invites a reaction.

Watch the South Koreans not invest in either Lehman or Merrill Lynch, since they are not fools. Did Lone Star actually sue the Koreans so as to block this rescue effort? Look for one or both of these Wall Street crippled firms to fall into bankruptcy soon. The climate will change radically as a result. The end of the Q3 quarter is nigh, and admission of renewed larger bank losses is a cinch. They are nowhere near the end of their mortgage nightmare. Watch Citigroup and AIG for matching failures. The Credit Default Swap conflagration is located on the AIG doorstep. The sovereign risk to the United States is now overshadowed by a risk of pre-emptive financial attack from foreign locations. The point here is that a mountain of new US Treasury supply is guaranteed to come soon. The new supply flies in the face of rising price. The timing for a bond attack is soon possibly perfect. For years, nobody has questioned the USTBond as the only viable parking lot for surplus capital, the largest and most liquid market in the world. Times will change. Third World bonds do not flourish!

The price inflation front is another big risk for USTreasurys. A CPI over 5% for back to back months represents a threat, but it is allayed by dormant wages. Next year, many sharp analysts expect the US Consumer Price Index to top level 10% level. Already the jobless rate surpassed 6% in the US , amidst a strange admission. Recognized in the open was how the extension of state jobless benefits resulted in counting more of the jobless! The return of gold used as an inflation hedge will be realized soon. As trade friction grows with China , in Post-Olympics times, the US will be less the beneficiary to lower wages from globalization. Gold will be the ultimate safe haven vehicle soon.

THE PROVOKED BEAR

A scenario must be laid out for theories of discontinuous nonlinear events and solutions whose fallout will alter completely the global geopolitical chessboard. The September Hat Trick Letter will focus on this topic from numerous angles. The next global chapter will have the United States isolated into a ‘Glorified Third World' surreal land. What many analysts fail to comprehend is that the current situation cannot continue, characterized by Third World finances, unspeakable bank fraud, and aggressive military behavior, whose mix is totally incongruous. Continuation of the status quo is untenable. The most recent events to upset the geopolitical balance in a state of constant flux is the attack by the US and Georgia forces against Russia , portrayed in opposite fashion. The US even had some help from allies on the battlefield, with dead soldiers behind the Russian lines held in freezer chests as bargaining chips and tangible proof. This all is avoided by the intrepid deceptive US press. To seek sanctions against Russia for its own defense seems ludicrous.

The Russian bear has been goaded, poked, and provoked in a systematic fashion. It will respond. Behind the scenes, plans have been made. The US Military is funded increasingly by foreigners, many of whom are considered enemies. It is almost tragic that so-called trade partners at the beginning of this decade 2000 have turned into enemies. Russia and China will become uneasy essential allies, whose common trait will be their opposition to the United States . They each want a formal seat at Global Finance Minister Meetings, routinely denied. The fragile trade relationship that the US depends so critically upon hinges upon continued US Treasury Bond support. Do not consider it assured. The US Treasury Bond is the quintessential point of vulnerability to the entire US financial, economic, and military system. A pre-emptive attack against the USTBond must be taken seriously. That is the story that has come to my desk in recent weeks.

Europe is the key prize. The US is attempting to push Europe into a conflict with Russia , so that the Russian emerging giant does not forge closer ties with Europe , to the exclusion of the United States . The NATO accords have been twisted and dishonored, used as a US convenience. Some might argue that NATO is dead, remaining only as a sharp stick to poke Russia with. The Russian-German relationship is natural and historical. Even Catherine the Great from Russia was from German royal bloodlines. The Russian-European energy supply relationship is natural and efficient. President Putin, and now his sidekick Medvedev, have grand resource and energy deposit wealth, and full willingness to use it as a powerful weapon. They might soon exclude the US in the supply chain, in favor or China , all the while keeping the tap flowing to Europe . The German leaders seem to be talking honestly with Russians, but engaging in lipservice to the Americans, winking across the Urals in the process. The next stage of conflict is Ukraine , where more US color revolution meddling is deep.

What many US tacticians fail to comprehend is that the USMilitary machine is on the verge of depletion (both troops & machinery), at a time when Russia has developed some key tactical superiority. The USMilitary is left with missiles, aircraft, and drones. See the anti-ship Sunburn and Onyx missiles in Russian control, each supersonic. The US Cruise missile is not. An attack on Iran , whether warranted or not, will immediately prompt a harsh and lethal financial counter-measure by Russia and its allies. The hapless US leaders are left to squirm and wonder who their allies are these days. Iran could be the grand trap.

THE GOLD ANGLE

Encircling the Big Bear has led to a powerful reaction, one that comes. It is planned, and awaits execution in an event-driven scenario. Quietly, physical demand for gold & silver has grown to monumental levels. Do not be deterred or distracted by the falling gold & silver prices. The price mechanism has totally broken, as supply is absent and vanishing. Since Russia , China , and the Arabs own so much gold, they are motivated to endorse the plan that comes, the plan in place, the plan that needs only the trigger events. Powerful foreign entities are increasingly angered by the price decline in gold , as US paperhanger conmen fraud kings have intervened to do harm to foreign savings accounts.


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