Yet another analysis of QE2 and it is not positive for the economy

Use the above link to subscribe to the
paid research reports, which include coverage of critically important
factors at work 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.

The backdrop has turned dire on
several front simultaneously. The great millstone around the USEconomy's
neck continues to drag it down. CoreLogic reported 2.1 million units
have created a swamp in Shadow inventory of the housing market. That
equates to 23 months inventory, whereas normal is 7 months. They
tallied the growing tumor of bank owned properties as a result of home
foreclosures, also called the REOs (real estate owned). Look for no
housing market recovery for at least another two years. Starting in
summer 2007, the Jackass forecast each year has been for another two
years of housing market declines, all correct. Ireland might be squarely
in the news, but the big enchalada is Spain. The Irish banks have
presented a grand headache for the European banks, with a $150 billion
exposure. Ironically, Ireland has done more to reduce its budget
spending effectively than any EU member nation, yet is left to twist in
the soft rain. They cut their government budget by 20%. The USGovt
budget grows every year without remedy or remorse. Few seem to remember
that Irish fund managers lost the German civil service pension funds a
couple years ago, a source of hidden tension and great resentment.
Spain will rock Europe and the Euro currency in the springtime. The
gold price consolidation will center on the Spain debt crisis hitting
fever pitch, with the Euro hit. Then again, perhaps a mammoth new wave
of European gold demand will neutralize any USDollar stability. On
Tuesday this week, the Euro fell by 200 basis points, but the gold price
was stable like a rock. That is notable strength. But the bigger story
of strength is with silver. The round robin of destruction to major
currencies that makes the Competing Currency War, the race to the
bottom in rotated currency debasement, it will lift gold & silver
in a round robin of strong demand.

MISDIAGNOSIS: INSOLVENCY NOT ILLIQUIDITY

The US bankers often go home to mommy and order a
giant slosh of monetary inflation whenever in deep intractable
trouble, like after the previous mistake in QE1 when ordering a giant
slosh of monetary inflation. The USFed, led by the academic
professor with no business experience, has ordered a fresh supply of
gasoline from a lit fire hose, but he does so on a collapsing building.
Bernanke has very erroneously diagnosed lack of liquidity within the
system to be the underlying problem. He has prescribed a huge
swath of 'free money' to be sent into the bond market as a solution. He
has prescribed that cheap money continue to be delivered to the
USEconomy. Bernanke has failed to notice the insolvency in banks, and
has failed to notice that 0% has yet to prompt any revival in lending
among banks. Bernanke is fighting INSOLVENCY with LIQUIDITY for a second time after learning nothing the first time.

The USTreasury 10-year yield has
risen from a grand bond market dare, not at all from evidence of growth.
Bond players dare the USFed to create another $1 trillion in new
money. In no way does another lift in retail spending constitute a
recovery. Household insolvency rises every month from worsening home
loan balances. The USFed wants households to spend more on borrowed funds, yet they have depleted home equity and vanished income security.
No, US bankers are confused with their wrecked financial engineering
aftermath and the broad banking system insolvency that they refuse to
acknowledge or discuss. Ever since the April 2009 decision by the
USCongress to bless the falsified accounting practices by the Financial
Accounting Standards Board, the big US banks have masked their ruined
balance sheets, sold stock for their dead entities, and pretended to
act as banks. Instead they are mere carry trade shells taking advantage
of the USTreasury yield differentials, and storing the cash profits in
the USFed, where it earns interest.

Finance minister Wolfgang Schauble
from Germany was hostile in public remarks toward the desperate
monetary decisions. At the recent G-20 Meeting, Schauble called USFed
Chairman clueless openly (his word), describing his policies as
reckless (his word). He ridiculed the USGovt approach to urge China and
Germany to reduce their trade surpluses. Take surpluses as signs of
success and competent industrial and policy management, where the US is
void. He gives his nation credit for a strong competitive industry. He
cites a direct contradiction. Schauble said, "The American
growth model, on the other hand, is in a deep crisis. The United
States lived on borrowed money for too long, inflating its financial
sector unnecessarily, and neglecting its small and mid-sized industrial
companies. There is no lack of liquidity in the USEconomy, which is
why I do not recognize the economic argument behind this measure."
Exactly on both counts!!! The USFed is fighting insolvency with
liquidity rather than debt restructure for a second time, after
learning nothing the first time. The US economists have lost their way
so badly, that they no longer comprehend the concept of legitimate
income. The US counselors push for putting more cash in consumer hands,
regardless of where it comes from. Call it heresy, or call it
incompetence, or call it blindness from the Keynesian bright lights
that burn bright in the inflation laboratory.

New money does not cure an
insolvent banking system or insolvent households. No sterilization of
QE2 is in the plan, to serve as protection for the USEconomy. Not in
QE2!! My forecast is for the hollowing out of the USEconomy from a
massive cost drain with puny export benefit, compounded by continued
income erosion. Price inflation will be labeled as growth, even income
growth, the chronic sins. The borrowing costs have been near
0% for 18 months with no economic response, making Bernanke's points
again vacant, myopic, and deficient. He is fighting an endemic insolvency problem with amplified monetary inflation. A voice with hint of wisdom came from former New York Fed President E Gerald Corrigan Corrigan. He said, "Even
in the face of substantial margins of under-utilization of human and
capital resources, efforts to achieve an upward nudge in today's very
low inflation rate make me somewhat uncomfortable." His experience
came under ex-USFed Chairman Volcker during the late 1970 decade, who
raised interest rates to 20% to combat inflation, pushing the economy
into the 1981-82 recession. That was the final chapter of anti-bubble
USFed chieftain linneage. Since the Greenspan Era, it has been full
speed ahead with inflation engineering, asset bubble creation, erudite
apologists, permitted bond fraud, careful collusion, and reckless
management. They have systemic failure to show for it.

The claim by Bernanke and a
supporting chorus of economists that QE2 will bolster USEconomic
competitiveness is fallacious, and patently backwards as usual. It will
push the US further into a wasteland, a vestibule to the Third World.
The higher cost structure uniformly imposed will render great damage in
a profit squeeze for businesses and discretionary spending squeeze for
households. New money does not cure an insolvent banking
system or insolvent households. It presents a new problem of
significiant price inflation. They want it, so they can call it
growth!! Producing high value products efficiently and cost
effectively makes the nation competitive. Imposing a fair tax structure
that is stable, reasonable, and with proper incentives makes it
competitive. Having an active legal prosecution staff to combat bond
fraud and defense appropriation fraud makes it competitive. Having a
strong education system makes it competitive. A weaker currency raises
the cost structure, increases import costs, and assists the export
trade if a nation has one. The United States has shipped a large
segment of it away in the last 10 years to China, after having shipped
a larger segment away in the 1980 decade to the Pacific Rim. Not only
did the US promote its financial sector, but it denigrated the
industrial sector as dirty. By removing a significant portion of the
nation's capacity to generate legitimate added value income, the
USEconomy was left vulnerable to debt overload and insolvency. The US
Ship of State was hoisted on its own petard. For those ignorant of
naval terminology, that means the US killed itself in a great display
of cannon backfire in recoil. The QE2 initiative will be disastrous
from many angles, certain to push the nation into an Inflationary
Depression, from the current chronic Deep Recession.

MARGIN HIKE AS FINAL LIMP WEAPON

Increases to the silver margin requirement in
futures contracts should be viewed as the final act of desperation. It
is a device to control price within the paper silver arena. However,
in a grand backfire, a higher margin produces a lower price for the
physical buyers, who eagerly step up to place and fill orders.
The margin maintenance hike on November 9th was six times greater for
silver than for gold. The Big Four US banks are caught in an
historically unprecedented short squeeze, bleeding $billions. Tuesday
November 9th saw a powerful gold & silver price downdraft. The
COMEX raised the silver margin requirement in a bland attempt to slow a
raging bull market amidst a broken global monetary system. One week
later they raised the margin again for both monetary metals. The price
downdraft continued. But some calmer winds in Europe enabled precious
metals prices to recover. Silver has snapped back much more than gold.

The Chicago Mercantile Exchange
raised the margin requirements for silver on November 9th. It was
highly motivated. They wanted to prevent a blowout upside move in
silver past $30 before Christmas, and to relieve some of the pain to
the Big Four US banks. Unlike gold & silver, no margin
hikes were doled out for soybeans, corn, sugar, or cotton despite their
concurrent price gains. The message is clear, that desperation has set in relative to precious metals, as conditions are breaking down badly. The
CME sent out a memo raising the margin maintenance requirements for
silver futures by up to 29%, from $5000 to $6500 per contract.
Initial positions have a slightly higher margin. It is their right,
being the market maker. Let not their fast disappearing silver inventory
deter their path. Less than two weeks later, the CME raised
the silver margin maintenance requirement another 11.5% to $7250 in a
sign of desperation. They also raised the gold margin, but
only by 6% from $4251 to $4500 in a symbolic gesture. The CME motive is
less about risk mitigation concerns and more driven by the desire to
restrain the bull market movement. The investment world will regroup
long before Christmas, like in the next week or two. Just when the
European woes focused on Ireland, and a rescue aid package seemed in
the offing, the silver price jumped upward by $2.00 on a single day,
November 18th, a strong telegraph across the paper-physical silver
table. The Powerz cannot halt the silver juggernaut, which will see
$30/oz by January. If a double hike in the silver margin is the best
they have, then they are truly whistling in the grave yard.

The demand for gold is
global, diverse, and motivated by the gradual disintegration of the
monetary system. Sovereign bonds that support the major currencies are
in deep trouble the world over. The consensus actions toward
Quantitative Easing, also known as hyper monetary inflation, have
boosted demand for gold & silver monumentally in a natural offset.
Dozens of nations and billions of people around the world are slowly
awakening to the grand deception of money itself and the crumbly
foundation that make up fiat currencies. They are losing money in
supposedly safe government bonds, a trend without precedent. Most of
Southern European nations will declare debt default within two years.
Foreign central banks are attempting to diversify their oversized
US$-based reserves without causing a run on the USDollar. Gold is
gradually being seen as part of the solution, at least in private
wealth preservation. Gold is the new reserve safe haven asset, since it
is true money.

Important changes have come to the
precious metals market. Silver has taken a leadership role. It has
broken out in Europe to new highs. Its snapback was impressive after
the weak-kneed COMEX hike in margin requirements. Silver is no longer
only seen as just an industrial metal, a commodity, but rather as a safe
haven alternative, a monetary brother to gold. The European Union bond
fracture has wrought great damage to the structural foundation of the
global monetary system. It is exposed as having a debt backbone, a
paper spine fashioned of weakness, vulnerable to central bank abuse.
Money is fleeing the EU Govt bonds, and fleeing even to some extent the
USTreasurys. Horrible publicity has befallen the Big Four US
banks with class action lawsuits at a time when Asian buyers have
targeted the silver market. The Asians of unidentified origin
(probably China) have descended with waves of layered orders,
exploiting the discount offered from the paper impact after the margin
hikes by COMEX officials. Recall that the US & China are locked in
a trade war. The louder the USGovt accuses China of currency manipulation, the more they bid up Gold & Silver on the quiet.
The strongest months of the year for Gold & Silver are December and
January. The margin hike seemed designed to interrupt momentum. It
only delayed the next powerful upward thrusts in price.

TITANIC BATTLE OVER PHYSICAL METAL

The nature of the Gold & Silver markets is
two-headed. The price discovery aspect is driven by the paper futures
contracts. Intended as devices to aid in pricing, to protect from drawn
out periods under which business is conducted with commitments made,
the paper futures arena turned into a monster two decades ago. The
paper tail has led the metal dog, a backwards condition. Some important
developments have taken place in recent weeks and months. Secure
allocated account holders at both the COMEX and LBMA have forced the
situation, demanding physical delivery of futures contracts. They
openly cite their distrust, as suspicion is aroused of improper lease
of allocated accounts. Huge delivery demands have come from Chinese and
Arab investors. The remarkable new wrinkle is that silver paper price
ambushes have led to strong silver physical purchases. Stories abound of an Asian assault on the silver market underway.
Interviews granted by those with direct information have appeared on
reliable websites. The skirmishes result in backfires to the paper
market mavens, as they offer repeated discounts to the Asian physical
buyers, who grab at the discounts with layered orders, as reported.
Therefore, the actions by the paper mavens works to accelerate their
own destruction. Investors should hope for occasional ambushes, so that
the physical side can reload and obtain more physical metal at lower
prices. Also, with occasional bouts of consolidation, the price
advances are more stable. A very bizarre pathogenesis of the silver
paper market is evident, hidden from view.

The London contact source has
shared details to the inner workings of the Asian silver market assault
on New York and London with an update. The Asian buyers have been
squeezing the shorts in the silver market, causing great pain as the
silver price has risen 50% since late summer. After the drop in price
from a brief touch of $29 down to the low $25's, the physical market has responded with strong demand. Keep in mind that the paper silver market is the opposite, a key point. The bizarre anomalous paper market results in more selling when the price drops, the opposite to normal.
The ambush catches the leveraged players off guard, forcing paper
position sales in sudden liquidations. So a collision is in progress.
The paper arena cannot produce enough silver after the raids push down
the paper price in order to relieve their tenuous short condition. By
pushing down the paper price, they must bring to the table the
discounted silver at the lower price, in physical deliveries. The paper
market is playing directly into the hands of the physical participants
who want to drain the exchanges of their bullion metal. The
credibility of the London source was enhanced by the quick jump above
$26 as he predicted earlier in interviews. He described lines being
crossed between the paper and physical orders, stops, covers, and
delivery demands. Details are provided in the November Hat Trick
Letter. Great intrepid work by King World News for developing the
valuable source.

A staggering rise in physical
demand is noted from Chinese & Indian buyers. Physical demand growth
more than offsets the miner de-hedging, a process almost wound down
fully. Investment demand globally is skyrocketing. According to
the World Gold Council, global demand for gold bars climbed by over
30% between 2Q2009 and the second quarter this year. De-regulation
in China might permit much broader gold ownership. That would unleash
huge demand and pressure the Anglo bankers. Chinese demand has been
strong for years, soon to reach a higher gear. With domestic mine
output not expected to grow much next year, China will tap the global
market, pushing up the gold price. New rules in China have already
enabled tremendous increases in private gold demand, whose volume
surpasses and overwhelms European central bank sales. The Chinese gold demand in 2010 will be a mammoth consensus estimated 500 tonnes. It will rise by as much as 20% in the year 2011, enough to surpass India as the top consumer in the next three years.
Demand is forecasted to rise to around 600 tonnes in 2011, according
to a Reuters survey of five analysts. Recent Chinese Govt restrictions
imposed on property investment and speculation in other markets have
resulted in more money going into gold and jewelry, which seems a
calculated policy by the crafty government officials in Beijing. Gold
will not burn their citizens in a bubble bust. Jewelry demand has risen
by an average of 7% annually in steady fashion.

Investment demand for gold in China has surged by 60% in 2009 to 150 tonnes.
On an annualized basis, China is on course to import 118 tonnes of
gold through Hong Kong. Domestic gold mine output is expected to be
flat inside China for 2011, the first time in years. Couple strong
demand and flat output, and big net import of gold bullion will result.
The Peoples Bank of China announced in August a relaxation of gold
rules, a prelude to broader reform of financial markets pertaining to
bonds and currencies. Banks would be permitted to export and import
more gold in a program to drive the development of their market in the
precious metal. Regard this as a direct assault on the COMEX in New York
and LBMA in London, since huge physical gold demand will ramp up to a
staggering high level. The PBOC wants to draw gold tonnage into their
country without disrupting market equilibrium unduly, as it diversifies
more of its burgeoning $2.6 trillion in FOREX reserves.

STATE VERSUS FEDERAL BATTLE

A great battle is being waged, but not presented
in the light preferred by the Jackass. Witness the Tenth Amendment
battle by the states versus the USGovt on the federal front. The battle
has myriad microcosms in the mortgage court decisions made against the
big Wall Street banks. So far the decisions favor the people, but the
USCongress is busy preparing an unconstitutional bill to permit
interstate contracts and possibly to whitewash any mortgage contract
fraud. Bank lobby funds flow briskly to the craftsmen of the
legislation. If challenged, such a bill might not withstand a
constitutional battle. Sheeple justice versus mega-banks could reveal a
quintessential states rights battle versus the federal govt controlled
by the banking syndicate. Local judges are taking action against
obvious criminal and predatory behavior by the big US banks. Some
Florida homeowners were foreclosed by the big banks when no home loan
was active in force. The Robo-Signers have captured much attention in
document forgery. People who challenge are often winning their homes
free & clear. Fraudulent attempts to foreclose and seize homes are
being interrupted by those who challenge, and demand to prove property
title. Legal precedents are set. Banks are worried. Regard the battle
as an extension of the Tenth Amendment challenge, with proxy brigades
doing battle. The big US banks represent the federal authority when a
certain lens is applied.

The struggle in my view reveals a bigger macrocosm, where the states are pitted against the federal government. The proxy warriors for the states are local courts, where mortgage jurisdiction lies. The proxy warriors for the USGovt are the big Wall Street banks, whose syndicate has taken control of the national government bodies in their financial ministries. The
states are fighting and winning the battle on home property
challenges. Recall that in separate movements, 20 states have invoked
the Tenth Amendment in a struggle to wrest back control from the New
York and WashingtonDC syndicate. Their turf struggle has been over
taxation, waged war, national security directives, border immigration,
even threats of pandemic. Witness numerous local battles, erupting
conflicts that serve as substitutes for state revolt against the
encroaching federal apparataus. The legal structure favors the states.
Watch the movements in reaction in counter-attack. What comes next
might be Fascist Business Model corrupt extensions. The November Hat
Trick Letter includes a review of some legal cases and their
implications, which seem to be centered in metropolitan New York
City. Some confusion might come from different decisions in different
jurisdictions that lack consistency across the 50 states. That lack of
uniformity might work to the advantage of upholding state rights, since
the nation has always favored individuality of the states, a strength
from diversity. Either way, a gigantic hairball is building within the
system pipelines at a time when the majority of states are ruptured
with huge budget shortfalls and pension shortfalls. They point a finger
to the Wall Street corner where the housing & mortgage bust
rendered damage. They point a finger to the USGovt colossus where the
bloat exists, the deficits have expanded, and the control is centered.

By the way, notice how Bank of
America quietly is approaching the funeral parlor. Word from my sources
tell of Wall Street buying heavily the Credit Default Swap contracts
for Irish and Portuguese Govt debt, in order to lift the bond yields
enough to create a renewed crisis. That accomplishes two goals. EU financial distress creates some selling pressure for the Euro currency, thus supporting the USDollar.
But a buoyed buck did not soften the gold price!! Sabotage of PIIGS
sovereign debt is the order of the day so as to force the situation in
Europe, which is stuck. The US bankers sense the need for contagion and
crisis to befall Europe once more. Ruinous monetary policy is being
exported from US locations. In the recent spring months, the USDollar
was given a relative lift from Greek financial woes. This time, the
effect will not be the same. Perhaps they can engineer an eerie calm in
the FOREX currency market. The USDollar image and condition are so
damaged and crippled, that the funds in flight will find Gold &
Silver in heavy volumes. But the more hidden motive is to
provide effective diversion from Bank of America. It is in a death
spiral that requires almost daily cash infusions. As one source put it, "The wires for funds transfers at the Federal Reserve are burning from daily rescues of BOA."
Witness the demise of Bank of America, again. Its own 200-day moving
average serves as a ceiling on a dark pathway leading to the cemetery.
Its managed death decline has come without news items. The mortgage
mess is their curse.

WORKABLE SOLUTION FAR TOO LATE

The solution to the USEconomy and financial
structure is long past available with the removal of the USTreasury
gold. Here is a solution that could have worked. QE2 is the antithesis
of a solution, one certain to cause great damage. Collateral, industry,
and smaller government are the cornerstones to a solution. The $500
billion in gold collateral leased in the 1990 decade by Wall Street
would be useful nowadays. People grope for bonafide solutions. Try this:
Multiply the gold price 7-fold to obtain a hefty realistic $10,000
price level, sufficient to provide $3.5 trillion for US banking system
collateral. Presto, some stability for the USDollar vis-a-vis the
USGovt debt. Then the task shifts to reducing the USGovt deficit
by means of terminating the endless war based upon dubious motives,
ending Medicare largesse, cutting entitlements from pensions,
eliminating several worthless agencies (like Energy and Homeland
Security), and offering major incentives for the return of US
manufacturing industry to US shores. The defense budget must
be cut by 50%, and be declared no longer sacred. But the opportunity is
long gone, since the USTreasury of gold was leased and sold for a few
$trillion in private Wall Street gains. The usual suspects are deemed
national heros.

These steps could have constructed
the foundation for recovery, with $300 to $600 billion in budget cuts.
Painful but progress. In two years, the deficit could have been
tremendously reduced. That math works for me, but it is too late really.
The nation repeatedly kicked the can down the road, the road that
leads to the Third World. The opportunity for solution begins with a
placement of gold collateral for both currency and debt, and a basis of
industry for legitimate income. Both are absent, due to wretched
leadership and profound corruption, as debt suffocates the system.
Almost all attempts toward remedy mask the true motive at work, the
preservation of power. The remedies turn out to be deceptive, adding
$trillions to the clean-up bill without results. The squander of new
money and the dissipation of asset bubbles are the essence of the Gold
bull, which will take it well past $2000 in the coming two years, and
much higher. The policy is not about solution, but rather power over
money. Hyper-inflation, economic deterioration, and USTreasury default
lie directly ahead, just a matter of time. Gold is the personal
lifeboat, whose silver oars row to safety.

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.

"As for your financial and
economic analysis, I appreciate your contemptuous style and how you
bring facts and commentary to your readers before most of the
alternative media and light years ahead of the mainstream press. You
are a beacon in a dangerous storm."(DanC in Washington)

"You have the unique ability to sift through
the mountains of disparate economic data and hearsay and weave them
into a coherent compelling storyline. The amount of unbiased factual
information you provide is unparalleled in the industry (and
desperately needed in these scary times). I love your no holds barred
approach to dealing with the narrow minded purveyors of dis-information
in the industry."(BobA in North Carolina)

"I think that your newsletter is brilliant. It will also be an excellent chronicle of these times for future researchers." (PeterC in England)