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 sizeable 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

A hidden massive sinkhole effect like seen many times in Florida could be close at hand. The financial press reports absolutely nothing on the tremendous loss of gold bullion in Western banks since February. Heck, the gold community seems largely unaware also that around 6000 metric tons of gold bullion have departed Western banks (mostly London) in recent months. The effect will be felt somewhere and soon, by sheer laws of nature. The big US banks might have only one asset of undeniable value, Gold. As they lose that asset during the process by which Eastern entities strip gold via forced demands during margin calls in off-exchange transactions with extreme pressure applied, some big US banks are being pushed closer to a death event. A string of bank failures could be nearby. These banks are far more hollow as structures than perceived. Continued television advertisements, sports sponsorship, and billboard lights do not demonstrate solvency, only zombie activity that lacks vigor. Begin the death watch for Morgan Stanley, which has endured the debt downward. As is the usual mantra by shamans, it was not as bad as expected. All hail.

To prevent the sinkholes from causing the next damage, in a hidden desperate maneuver, many cartel banks will attempt to move gold bullion from private executive accounts to save themselves. They will surely continue the illicit practice of raiding allocated accounts, replacing them with gold paper certificates. They will complete the trifecta by draining the SPDR Gold Trust, removing inventory by privileged shorting practices. The entire migration of gold creates an extreme risk for the Western banks, the true asset evacuated. They have many assets on their balance sheets, mostly toxic paper from USTreasury Bonds, Euro sovereign bonds, mortgage bonds, mortgage loan assets, corporate bonds, commercial paper, and commitments tied to derivatives. The great majority of such assets on balance sheets is toxic paper, in a fast-paced process of imploding in value. Those balance sheets also used to contain gold bullion in high volume. That is no longer the case, the bullion having been leased & sold in past years and raided in a massive systematic scale in recent months. The bank balance sheets have been thus hollowed out, leaving their structures to stand on toxic paper, and much less on sturdy inert gold metal. Recall that insolvency plus illiquidity forces bank failure. The many bank runs are like a grand final hollowing process that affects the entire banking sector in lost reserves, large and medium sized banks alike. The absent reserves remove liquidity, amplified by the fractional system.

The big US banks are left vulnerable to failures. The event is coming. Continue the death watch on Morgan Stanley despite their continued walking status. Zombies walk too, but they look funny and have ugly skin with many ghastly blemishes. The extreme risk for Morgan Stanley is two-fold, never having gone away. 1) They are a primary executor of the high-risk Interest Rate Swaps that defend the USTBond artificially low yields. 2) They have significant European sovereign bond exposure. They extended a huge private USDollar swap to big European banks until the USFed stepped in a few months ago.

STRANGE EXTREME STORIES AS WARNING WIND

Numerous stories are circulating of vast cyber bank thefts. The locations appear initially to be European. The volume is reported as EUR 2 billion so far. The authorities will not discuss it in the open. The bank glitches might be more about kiting of funds at best, or cover for internal raids of accounts at worst. The much juicier story pertains to 600 highly paid accountants on a Wall Street assignment. It is too large to be kept a secret, since it is draining the sector of its accounting staff for hire. The rumors are as thick as black clouds. They are busily attempting to determine the financial status of a large Wall Street bank loaded with a mountain of complex derivative contracts. The toxicity is openly mentioned. No secrets can be maintained. It is surely Morgan Stanley. The next Lehman Brothers event is just around the corner. One is reminded of an incident several years ago, where Ashanti Gold had to hire a battalion of financial accountant experts in order to assess the value of their crippled balance sheet overloaded by complex gold forward sale derivatives. In other words, they needed to conduct a formal study to determine if they were indeed dead. The same is happening with Morgan Stanley, dragged down by a mountain of financial derivatives. The better question is who ordered the accounting to be done, to determine if a Wall Street firm was dead? And why?

CHINA RECASTS GOLD BARS

China is well along an ambitious plan to recast large gold bars into smaller 1-kg bars on a massive scale. A major event is brewing that will disrupt global trade and assuredly the global banking system. The big gold recast project points to the Chinese preparing for a new system of trade settlement. In the process they must be constructing a foundation for a possible new monetary system based in gold that supports the trade payments. Initally used for trade, it will later be used in banking. The USTBond will be shucked aside. Regard the Chinese project as preliminary to a collapse in the debt-based USDollar system. The Chinese are removing thousands of metric tons of gold bars from London, New York, and Switzerland. They are recasting the bars, no longer to bear weights in ounces, but rather kilograms. The larger Good Delivery bars are being reduced into 1-kg bars and stored in China. It is not clear whether the recast project is being done entirely in China, as some indication has come that Swiss foundries might be involved, since they have so much experience and capacity.

The story of recasting in London is confirmed by my best source. It seems patently clear that the Chinese are preparing for a new system for trade settlement system, to coincide with a new banking reserve system. They might make a sizeable portion of the new 1-kg bars available for retail investors and wealthy individuals in China. They will discard the toxic USTreasury Bond basis for banking. Two messages are unmistakable. A grand flipped bird (aka FU) is being given to the Western and British system of pounds and ounces and other queer ton measures. But perhaps something bigger is involved. Maybe a formal investigation of tungsten laced bars is being conducted in hidden manner. In early 2010, the issue of tungsten salted bars became a big story, obviously kept hush hush. The trails emanated from Fort Knox, as in pilferage of its inventory. The pathways extended through Panama in other routes known to the contraband crowd, that perverse trade of white powder known on the street as Horse & Blow, or Boy & Girl.

MONEY & DEBT ARE FAILING

The rabid rapid creation of new money and new debt are failing in the system finally. The perpetual Quantitative Easing has arrived, with failed traction. It is failing just like perpetual 0% and the slipped stimulus, which has no traction since the USEconomy lacks a critical mass of industry and factories, those value added centers forfeited eagerly to Asia for three decades. Diminishing returns on bond yield support dictates that bond monetization must accelerate more quickly. The effects are turning nil on short maturity bonds, but still minor on effect with long maturity bonds. The concept perversely goes parallel to negative returns on Gross Domestic Product from new debt application to the system. Not only is debt failing, but debt monetization is failing. Slippage is broad and becoming worse. Quantitative Easing like the ZIRP are tools to apply sparingly since they are toxic tools. The 0% policy wrecks capital broadly and alters all pricing models. The bond monetization discourages creditors, inducing them to leave the room. As both are needed in increasing exponential quantities, the paper shamans cannot keep pace. They lose the battle from inability to apply ever growing magnitude, while attempting to conceal their high volume activity. In time, like now, traction is lost and benefits vanish. The USFed is stuck, and cannot stop expanding the money supply to cover bond sales. The USFed intervention in the form of bond monetization can never stop, period. Arguments on the other side as illusory, meaningless, and distracting. To claim that the size of their balance sheet is irrelevant, whether 10 billion or $10 trillion, is truly contaminated thinking. However, almost all teachings and dogma from the central bank has been toxic since 2007, founded in pure heresy, acclaimed by all authorities.

Read the rest of the article

The Best of Jim Willie