Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20
AMAZON Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 11th Jan 20
Gold Price Reacting to Global Flash Points - 11th Jan 20
Land Rover Discovery Sport 2020 - What You Need to Know Before Buying - 11th Jan 20
Gold Buying Precarious - 11th Jan 20
The Crazy Stock Market Train to Bull Eternity - 11th Jan 20
Gold Gann Angle Update - 10th Jan 20
Gold In Rally Mode Suggests Commitment of Traders (COT) Data - 10th Jan 20
Disney Could Mount Its Biggest Rally in 2020 - 10th Jan 20
How on Earth Can Gold Decline During the U.S. – Iran Crisis? - 10th Jan 20
Getting Your HR Budget in Line - 10th Jan 20
The Fed Protects Gamblers at the Expense of the Economy - 9th Jan 20
Last Chance to Get Microsoft Windows 10 for FREE! - 9th Jan 20
The Stock Market is the Opiate of the Masses - 9th Jan 20
Is The Energy Sector Setting Up Another Great Entry? - 9th Jan 20
The Fed Is Creating a Monster Bubble - 9th Jan 20
If History Repeats, Video Game Stocks Could Soar 600%+ - 9th Jan 20
What to Know Before Buying a Land Rover Discovery Sport in 2020 - 8th Jan 20
Stock Market Forecast 2020 Trend Analysis - 8th Jan 20
Gold Price at Resistance - 8th Jan 20
The Fed Has Quietly Started QE4 - 8th Jan 20
NASDAQ Set to Fall 1000pts Early 2020, and What it Means for Gold Price - 8th Jan 20
Gold 2020 - Financial Analysts and Major Financial Institutions Outlook - 8th Jan 20
Stock Market Trend Review - 8th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

US Treasury Bonds Default Avoidance Means Dollar Death

Interest-Rates / Fiat Currency Nov 12, 2008 - 07:56 AM GMT

By: Jim_Willie_CB

Interest-Rates Diamond Rated - Best Financial Markets Analysis ArticleLIQUIDATION & USTBOND SUPPORT - The two main factors pushing up the US Dollar have been liquidation of speculative trades funded by it, and redemption of credit derivatives paid in it. These are not signs of any inherent investment in the US Economy itself, but rather its liquidation. Evidence abounds of severe deterioration within the United States, a collapse of confidence, a fall in business investment, ruin in retail demand, an avalanche of job loss, and a spread of corporate breakdown beyond the financial sector. Demands for nationalization have begun outside the financial sector in a wave certain to grow in strength and breadth.


The US Economy faces a risk of not so much recession, as DISINTEGRATION. The distribution channels within the United States are at risk from lack of credit and trust. The overseas shipping channels to the United States are at risk from refused letters of credit. These constitute arterial clots never seen before. Look for export trade also to be harmed soon, as the US Dollar exchange rate is silly high, and foreign customers are damaged from export of US bond toxin.

LAST DEFENSE AGAINST USTBOND DEFAULT

The printing press is that last defense. Default can be averted, but only with extraordinary actions with clear impact on the US Dollar itself, undermining USTreasury integrity at the same time. The huge funding needs in excess of $2.6 trillion cannot be even remotely met by conventional USTreasury Bond issuance. Auction failures from ridiculous under-bid conditions are next to come. Higher bond yield offered is an immediate result. The last resort to printing press usage will have an immediate and negative effect on the US Dollar exchange rate. Theoretically the printing press can meet the demand, but in doing so, the risk is transferred to the US Dollar from the USTBond. The two are inseparable. In fact, the USGovt-backed bond in the Treasury (which used to hold gold, now pure toxic debt) is the obverse of the US Dollar

The backside risk is for the USTBond yield to rise from US Dollar pressure, as foreigners sell. The US Fed and Dept Treasury have fiercely resisted unbridled usage of the printing press, for fear of inflation consequences. Evidence abounds, revealed in the November Hat Trick Letter report, to reveal specifics on draining the mainstream US Economy for the benefit of corrupt Wall Street bond redemption and general bailouts. Rob the US populace realm in order to subsidize aristocratic fraud and redemption. The unlimited risk from AIG, seen in credit derivatives, and from Fannie Mae, more hidden from interest rate swap risk, is next to be manifested in double barrel form. Already, AIG is back to the trough for the third time. Keeping a lid on credit derivative explosions has been a primary motive for bailout action in recent months. The Fannie Mae demand will be more like a gigantic intravenous supply, more hidden from view.

The pennant pause pattern in the long-term USTBond yield can be seen in the chart of the 10-yield for the Treasury Note. My expectation is for the yield to move out of the pattern to the upside. Foreigners are witnessing an artificially high US Dollar at the same time as an artificially high USTreasury principal (from low bond yield), a bad combination. Auctions will thus be strained in coming weeks and months. Details on the USTreasury Bond risk and connected factors are in the Macro Economy report for the November Hat Trick Letter.

STEEP TREASURY YIELD CURVE

The gold price typically loves a steep yield curve. Banks do also, but they are struggling in a horrible manner with insolvency. A great consolidation phase is underway, described in past articles, and increasing in strength, where the Federal Reserve banks benefit. Evidence is ugly and stark, as the great majority of the initial Wall Street bailout tranche was not dispensed as bond purchase but rather of bank stock purchase of Federal Reserve primary dealers! Banks are not lending the USGovt funds from the bailouts, a violation of agreements, but then again, a Coup d'Etat took place recently as Wall Street installed a Czar named Henry who acts unilaterally.

The short-term bond yield in the USTreasury complex is low, while the long-term bond yield is high. Profit margins will be aided in a pyrrhic victory for the banks, who are dead but still permitted to operate. They borrow short and lend long, so have a decent profit margin restored. Price inflation will be the phenomenon discussed in coming months, as officials attempt to turn on the switch and reflate the US financial and economic systems. The task is fraught with risk and challenge. The level of deterioration in the US Economy is great, more than what the bankster megalomaniacs figure.

CLASH DIRECTLY AHEAD, GOLD IMPLICATIONS

The major nations and camps are heading for a power clash of historic proportions. Certain nations have long memories for having been victimized by past imperial forces. Look for them to set a series of traps, with possible military confrontation. Analysis has begun of the extent of degradation and impotence of the US military machinery. Conflict resolution will not occur at the conference table alone. Brawls on the global landscape are assured. The G-20 Meeting will serve to be a sideshow, populated by clowns. To an absurd degree, the United States and England still maintain the grand illusion of being in control. They are not, since both are deep debtor nations and operating under failed banking systems. The major creditor nations will not permit a simple restart of Western nations, under the same rules. Big changes are coming. The gold and silver prices will soon enter a powerful stage of rising price, as in go through the roof. Defaults are likely at the COMEX, so watch the December contracts.

In the next couple months, all value will be called into question on the paper side. Alternatives to the US Dollar as global reserve currency are soon to be discussed and even tested. Implications to global commerce are huge and all-encompassing. Gold and silver will emerge as the primary store of value, in undisputable manner. The new global masters, from the credit side and not from the debtor side, will not permit any confiscation of gold or silver to occur. Desperate attempts might be seen by the US/UK failed team, certain to reveal their impotence. Gold & silver will emerge from these smoldering ashes of bank ruins (seen clearly as unfolding) as survivors of stored value. The next round of economic decline will occur outside the financial sector, and serve as exclamation points for the need to find true value. VALUE IS ULTIMATELY FOUND IN GOLD & SILVER.

THE BIG ELEPHANT CARCASS

As a friend and contact has said to me, “The US financial system can be killed with a single well-placed shot, much like a shotgun to an elephant.” The US is so vulnerable, its true condition is indescribable. The USTreasury Bond represents an obelisk bubble specifically originating within the bond bubble that has broken in a general sense. It rises like a narrow tower above all the other deeply damaged bonds in a perversely structured credit market. All non-government bonds have suffered, while USTBonds have benefited. The high USTBond principal value and high US Dollar exchange rate will encourage foreign bond holders to begin to “spend” their artificially high valued USTreasury Bond securities before events occur to greatly undermine their value. See for instance the Chinese announcement to spend $568 billion in a stimulus package. Although great news for the commodity and reflation trade, this cannot be seen as good news for the USTreasurys. They will lose a strong Chinese bid, or see outright selling.

The Chinese plan calls for strong support of public housing, infrastructure, railways, and indirectly demand for commodities. Contrast theirs to US plans to support failed financial firms and deeply rooted corruption of marquee named financial firms, at the exclusion of mainstream businesses. Other nations will soon be forced to defend their own domestic currencies against an unreasonable decline in exchange rate, the result of the Black Hole in USTBonds. Currencies from nations ranging from Europe to Brazil to Russia will react by selling their USTBond reserves, and to use them for purposes consistent with why those reserves were accumulated in the first place.

GLOBAL USDOLLAR SWAP GAMBIT

A desperate attempt was made in recent weeks by the US Federal Reserve. They installed a US Dollar Swap Facility, which essentially averts failure in the form of non-government bond defaults within the credit market and credit derivative markets, flooding the global financial system with USTBonds. As the US attempts to jumpstart a Reflation Initiative, the rest of the world will be pulled into the same policy, so the US power hungry but failed wizards believe. Foreigners will grow increasingly confused and defiant, offering central bank support but not showing up with any vigor for USTreasury auctions.

This is a huge risk to avert USTreasury Bond default from the back door. As the globe is reluctantly coerced to follow the US lead in a reflation, the gold and silver prices are sure to respond. The clarity of the depth and scope of attempted reflation will be vividly clear when General Motors faces further bailouts. A GM failure would have more bond damage done than the Lehman Brothers failure, but with a million jobs vaporized from a mammoth vertical integration and broad fallout zone. Implications to the US Dollar will be seen. In a sick sense, the extension of bailout and rescue will grow out of control, and usher in entrance to the Third World.

The transition of the new Obama Administration seems marked clearly by continuation of Wall Street and Washington DC insiders, not change. Expect all four major syndicates to remain in place. An analysis, a good start and by no means complete, since names are not yet final, of the Obama Cabinet is included in the November Hat Trick Letter report. Any Dept Treasury Secretary picked by Robert Rubin will continue the Wall Street stranglehold of US Dollar and banking policy, not change. A vast revolving door is clear, payback for support during the long campaign for both donor support and media coverage. Never confuse change with transition.

THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.

From subscribers and readers:

At least 30 recently on correct forecasts regarding the bailout parade, numerous nationalization deals such as for Fannie Mae and the grand Mortgage Rescue.

“Your analysis is of outstanding quality, the best I have read. In particular, as a person on the spot, I can confirm the accuracy of your bleak assessment of our prospects in the UK .” (JanB in England )

“I just subscribed to your services and must say that your insights are so eye-opening that it is like having a window to the future. I never thought that they would in so much detail encompassing the entire world. With all that is going on, I still wonder how you are so in touch with it all.” (ChrisB in Australia )

“The latest Hat Trick letter is great work. I am still reading and absorbing, but this is just great analytical work. Truly inspired. I would say you produce a very sophisticated, detailed product that is the best of the bunch. Truly. You help keep me very focused on current events and help me keep my eyes on the distant horizon.” (RichardB in Texas )

“Your unmatched ability to find and unmask a string of significant nuggets, and to wrap them into a meaningful mosaic of the treachery-*****-stupidity which comprise our current financial system, make yours the most informative and valuable of investment letters. You have refined the ‘bits-and-pieces' approach into an awesome intellectual tool.” - (RobertN in Texas )

“Your reports scare the hell out of me every month, probably more so over time, since so many of your predictions have turned out to be very accurate. I am afraid you might be right that by the end of 2008, we are in a pretty severe situation, with civil unrest and severe financial stress on Main Street .” - (GeorgeC in Minnesota )

by Jim Willie CB
Editor of the “HAT TRICK LETTER”
Home: Golden Jackass website
Subscribe: 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.

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

Jim Willie CB Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules