Outline on Collapse End Game
By: Jim Willie CB, GoldenJackass.com
Many are the events, signals, and telltale clues of a real live actual systemic failure in progress. Until the last several months, such banter was dismissed by the soldiers in the financial arena. But lately, they cannot dismiss the onslaught of evidence, a veritable plethora of ugly symptoms of conditions gone terribly wrong and solutions at best gone awry and at worst never intended in the first place. My theory has been steady from the TARP Fund scandal and the Too Big To Fail mantra of deceit. The plan all along since the breakdown began in September 2008 has been to preserve power, to maintain intact the insolvent banks an operational crew of zombies, to aid the financial sector bound in Wall Street, to pay benign neglect to Main Street and businesses (expect for symbols like General Motors), to expand the propaganda of a fictional recovery, and to maintain the endless wars. The wars serve two purposes, to enable significant fraud from overcharged services, and to hold open the gateways for sizable money laundering flows into the Wall Street banks, those hollow structures that closely resemble a coke addict with dark teeth, wretched bones, wasted organs, lost attention, and a listless gait. The Greek showcase is coming to a neighborhood near you in Western Europe and Great Britain, soon to feature debuts across North America. No, the United States is not immune from the horrors of ruin since its marquee billboards read Zero Percent. It only means the wrecking ball works from the inside out, serving as the central needle in the Black Hole. An outline of the End Game can be written. This article is not comprehensive by any means. But it serves as a decent posting on an outhouse wall. Consider the following as musings in observation of Uncle Sam on death row. They bear no logical flow, just random concepts.
OPERATION TWIST IS Q.E.
Operation Twist cements ZIRP and closes the door on any Exit Strategy. Nothing exists in the twist of substance, a mere shift of the shell game movement. The most powerful effect of a maintained Zero Percent Interest Policy is that it ensures a systemic failure with capital destruction, rising costs, falling profit margins, and deterioration in the USEconomy. It guarantees growing federal deficits without any potential of resolution, and finally a USGovt debt default. Just one year ago, the travesty of political failure was in full view with the Super Committee charged with spending reduction. It folded like a cheap tent. Deficits have been written in stone. The nation has moved from a permanent housing decline and lost legitimate income (factory exodus to China) as principal cause for systemic failure, to a failure based upon capital decay and absent profitability. Absent legitimate income fostered rot from within. The USFed in its growing desperation (hardly infinite wisdom) has been attempting to control the rising cost structure by means of a steady concerted effort to render deep harm to final demand through economic damage. They will succeed, but cause a downward spiral that cannot escape the powerful clutches of capitalism gone into reverse. The central bank clowns will win a USTreasury Bond rally to bring about the final collapse all in a Black Hole. As the 10-year TNX yield zips below 1.5% and heads toward 1.0% in the future months, as the recession gallops along and enjoys recognition, the systemic failure will be more evident.
TRILLION$ AS POCKET CHANGE
From December 2011 to April 2012, the Dollar Swap Facility released $3.2 trillion for European bank aid. It accomplished nothing, since their banks are a field of Greek-like ruins still. The money went into the LTRO funds, the ill-planned knucklehead Draghi plan. The banks bought overpriced government bonds, lifted in value by the Euro Central Bank itself. The same banks are worse off than before the application of LTRO funds. What irony! Draghi has no credibility left. Harken back to 2009 when a similar Dollar Swap Facility released over $1 trillion to the same European banks. It solved nothing either. The tragedy is accentuated by the realization that central bank clowns learn nothing, attempt the same vacant solutions, only to repeat their errors at a later date. The public seems incapable to recall the past failures, holding out hope. Now we hear of a possible $2 trillion plan to recapitalize the European banking system. In Weimar terms, this is pocket change. Counting the US fixes, the London fixes, and the previous DSFacility, the total is closer to $6 trillion already wasted in a massive debasement series of whiffs. So another $2 trillion is pissing in the wind of Weimar flatulence, the stench to be noted by next year.
When the paper mache artisans start talking about a total of $10 to $12 trillion for Western Europe, the United Kingdom, and the United States combined, then they will be seriously planning a banking system recapitalization. They prefer the futile incremental approach, with the proviso of not liquidating the big banks. The hilarious factor is that even $10 trillion would not work, but it would indeed buy another couple years, maybe three years. So if an alcoholic has the Delirious Tremens, the consensus stupidity calls for feeding him a higher proof Jack Daniels whisky and from a vat for intravenous application, which will revive him, when a mere few liters would not. It is utterly amazing that Bernanke and Draghi are given any respect at all. This is utterly absurd, since the wrong-footed solution is going to be simply higher volume of what does not succeed in reviving the system. WHEN THEY START TALKING ABOUT BIG BANK LIQUIDATION AND A NEW GOLD-BACKED MONETARY SYSTEM, THEN EXPECT SOME TRACTION. But such a plan would involve plowing the system under and removing the bankers from power. Until then, plan for a bigger killing field. The great tragedy is that the killing field is the entire Western monetary system, attached at the hip to the Western Economic system. Witness the gradual collapse.
BASEL RULES LOOKS TO GOLD
If the Basel castle dwellers decide to make Gold a Tier-1 asset, banking capital adequacy ratios would be adjusted by a dictated order. In response to the global banking crisis, based upon paper foundation turned toxic, the Basel rule changes have aggravated the banking woes. As rules are tightened according to assets held and their type, the move could potentially be favorable toward Gold. New encouraging rules that declare Gold to be a reserve asset could result in between 1700 and 2000 tons in purchase. Think of it as bank ballast in a storm of toxic seas. The issue is the so-called Basel III rules. The ultimate central bank is on the verge of declaring Gold to be a Tier-1 asset for commercial banks with 100% weighting. Curiously, it is currently a Tier-3 category with just a 50% risk weighting. Like gold is only half money, how absurd!! It took a 50% downgrade of sovereign bonds to bring about such progress. They are set to increase the amount of capital banks also must set aside, a double win potentially. The incentive away from Gold toward risky assets such as stock, currency, and debt-related assets resulted in disasters. A category upgrade in Gold would effectively drive up its value relative to other competitive qualifying assets. By elevating Gold to a bank reserve asset, stability would enter the equation, since the yellow stable metal moves inversely to the risky paper assets that have crumbled. Gold is ideal as it bears no credit risk, and has no counter-party risk, only theft risk (due to desirability) and shell game risk (from certificate games).
An upgrade to Tier-1 asset would make a triple win: 1) An endorsement of wealth preservation and store of value from the syndicate penthouse, 2) inducement for significant gold purchases by major financial institutions, and 3) reappraisal of gold’s value with respect to other Tier-1 capital such as quality sovereign debt. Under the new rules, Gold could find a significantly larger proportion of a reserve pool pushed into sudden growth. The Bank For Intl Settlements might turn chicken, as time will tell. The calculus is appealing. If 2% of total current Tier-1 capital held by commercial banks globally were to be converted into gold, a suggested 2% of the $4,276 billion would amount to $85 billion in gold purchases. That comes to the neighborhood of 1700 tons of gold bullion. Hence banks would be encouraged to hold gold with similar motives to central banks, which hold 16% of reserves in gold. One might wonder if the BIS is tightening slowly in order to swing the wrecking ball left and right, with more technocrats in wait to fill prime minister posts like Monti in Italy. But politics is not an area for the Jackass to wander.
EFFECT OF ABSENT GOLD ON BIG U.S. BANKS….
Article Link: http://news.goldseek.com/GoldenJackass/1340820786.php