In These New Times

A new paradigm for a post-imperial world

USTBonds: the monster spleen

Posted by seumasach on October 5, 2011












Jim Willie

Gold Seek

4th October, 2011 


The USTreasury Bond rally over the last few months has been celebrated. Some call it a contradiction of the Standard & Poors debt downgrade of USGovt debt. Some hail the rally as proof that the USDollar remains respected as global reserve currency. Some regard it as a sign of bond market health in general. Some claim the US remains the safe haven. These are all errant views to the extreme, comments from cheer leaders to a system in deep deterioration, distractions from reality. The United States is stuck in a powerful recession, its huge federal deficits set to expand further, the fiscal austerity to be sacrificed, the turmoil in Europe rendering the US panorama more alluring and cute. The USTBond is in strong rally mode because theUnited States is in the process of systemic failure, leading ultimately to some form of official debt default. The Greek Govt Bond yield rises from its fractured insolvent ruined status. The USTreasury Bond yield falls from its fractured insolvent ruined status also. It is a Black Hole, attracting funds from productive chambers of the USEconomy and pulling them into the dark place loaded with deficits, defaulted debts, and decay of capital. Let us not celebrate the USTBond rally. Instead, work to end it before the expanding spleen removes all the blood from the body economic. The organ serves as a reservoir, whose size must be contained. Unfortunately, important factors prevent the bond rally from doing anything but consuming the entire nation and confiscating its wealth.









The national counsel is bereft of ideas, having lost its sense of capitalism. They promote the Panhandle Consumer doctrine and Parasite Financial doctrine, calling it policy. It is heresy uttered from high priests, no longer worthy of respect. The punishment is a USTBond rally, a monster spleen, whose reservoir should never grow without bounds. When it does, doctors realize a great danger. Our economic doctors are purveyors of heretical dogma that has sent the nation into a downward spiral that it will not exit from. Industry has gone. Finance has gone amok. Investment banking has turned into a casino. Homes have become nightmares. Jobs have been vanishing. Corporations have moved overseas. Political parties are polarized. Fiat money has turned toxic, and so have their bonds which support the crumbling monetary system. The mess in Europe offers an excellent glimpse of what it to come to the United States. We have our mortgage toxic vat. They have their PIIGS sovereign toxic vat. The US has transformed into the prettiest horse in the glue factory.


The blood (tainted money) in both capitalist systems has been circulating for two years throughout the economies, spreading the equivalent of gangrene. More money thrown at the problem has accomplished nothing except to raise the cost structures, to raise the government deficits, to retire working capital, and to raise the demand for USTBonds. The only proper medical thermometer is Gold, with its Silver handle. The signal to watch is deep revived bank distress. As sovereign bonds of all stripes face ruin, Gold will again shine bright, and Silver will glitter. Following the late 2008 and early 2009 decline in Gold, it rose 150%. For Silver, the rise was over 300%. Prepare for a repeat episode as four enormous destinations are presented: 1) bank bond redemptions, 2) bank recapitalization, 3) economic stimulus, and 4) debt monetization. The monetary growth will be absolutely astonishing and staggering.



The analysts, mavens, anchors, asset managers, government advisors, central bank governors, ministers of finance, and otherwise Pied Pipers are incapable of detecting the warning signals. For those who find such a wide accusation to be off-base, consider that none of them found the  housing market to be a bubble, none found the mortgage market to be a bubble, and none of them anticipated a return to economic recession. The Jackass did on all three!! Also, none seem capable of comprehension that the nation’s industrial base must return to US shores. None seem capable of comprehension that the nation’s biggest banks must be liquidated. Both are obvious pre-requisites for any recovery. The priority has changed once again from the summertime. The USGovt favors short-term stimulus, alongside long-term restraint, a total deception to continue. Stimulate the economy and deceive on future projections, which could not have been more incorrect in the past decade, a failing grade to economist forecasts.


Consider the horrible realities behind the USTreasury Bond bull market, signals of ruin.


USTreasury Bond is the sanctioned approved asset bubble. Almost nobody seems to find anything negative about the rally. It is regarded as some kind of international approval meter. It is not so much a contradiction of the S&P debt downgrade, as a confirmation of the financial and economic system having gone far past the point of remedy. It is the only performing asset. The USTBond will be the last asset bubble, because it sucks the life from all its competitors. The USGovt approves of its expansion, since they believe it confirms legitimacy of the debt. The bubble is proof positive of failed monetary policy, failed fiscal policy, failed economic policy. The USTreasury Bond market is not a safe haven. It is a habitual cave entered by people with a caveman mentality that lack discernment. The cave has an massive paper fire burning inside that will snuff out life of the hirsuit humanoid.


The bond rally grew from direct Interest Rate Swap abuse. The first shove movement, and a kick when sputtering, came from such leveraged instruments. The additional $9 trillion in 1Q2011 by Morgan Stanley from derivatives, 85% of which are typically IRSwaps, was totally overlooked by all the Pied Pipers that populate the investment community and policy shops. This devious and hidden tool borrows at 0% and buys at the long maturity end. It creates artificial demand for the USTBonds themselves, and easily dupes investors into believing they are safe with wide demand.


The Fed Valuation Model has become a deceptive tool to assess valuations. It proclaims stocks are cheap according to Price Earnings Ratio that integrates the ultra-low interest rates. This model is a total joke, so much that even analysts mention it less and less. The earnings projections are lofty and exaggerated. Revisions are done after the fact, in the form of well publicized misses. The interest rate is artificially low. The stock market is vulnerable to a 20% decline on a constant basis. The recent volatility to the downside attests to such a claim. Blame is given to the onset of recession. But that recession never ended.


The US Federal Reserve intentionally has spewed devious deception about Quantitative Easing III.They wish to build political support for the massive expansion of the money supply. They wish to attract deep channels from stock funds to fund the gigantic USGovt deficits, at a time when Q4 federal deficits are due to rise by $1 trillion, in keeping with past years. Significant demand must be grown and developed, even if perverse and all-consuming. This failed central bank continues to apply liquidity in high volume in treatment of a grotesque insolvency problem. Like a fool, Bernanke insists the USFed did not bail out banks, and did not disrupt the cost structure. He is inept, but consistently so.


Improper cost of money has been present for over a decade, now at a climax in artificial low amount.The entire USEconomy, cost of capital, and payout for asset risk have been distorted to the extreme, inducing speculation. The wrongly priced money element ripples throughout the entire system, pushing the distortions and false values into almost every corner. The supposed experts of economics cannot detect this obvious eyesore. The long-term USTBond yield has been far below the prevailing Price Inflation rate for 15 years, a hallmark blemish of the Greenspan Era. The entire system is suffering from grand distortion.


The US Federal Reserve trades blame for failure with the USGovt, in particular the USCongress.They are both losers. The central bank franchise system has run its full course, at a dead end. The report card for that failure is a gargantuan federal deficit, which will surpass $2 trillion next year (the fiscal year just started). The Bernanke Fed has declared it has no more tools to use, a spent arsenal, an admission of failure, and foresees a nasty recession. They point the finger at the USGovt for fiscal restraint, not yet austerity, since too much restraint would mean a deeper recession that is never properly admitted. Witness Mutt & Jeff berating each other, two caricatures of leadership. Bernanke still cites inflation expectations like a moron.


The USEconomy suffers a damper effect from nil interest granted to savers. Almost twice as much volume is devoted to savings and to consumer loans. They receive less in interest payouts for their savings, less for the risk they take, less for the erosion. Appropriate return on investment is lacking, and therefore discouraged. The stimulus to the financial sector is preferred, but it is perverse. But it reveals where the power lies, with bankers. The Wall Street crowd is enriched at the expense of Main Street, which is left wanting. The financial sector become oversized, and the industrial sector became undersized. This is backwards. The source of legitimate income is inadequate to foster any recovery.


Inter-bank market lending has dried up both in the US and Europe, as the corporate bond market has been crowded out. Banks distrust each other, and for good reason. They know they all hold toxic assets on their self-evaluated balance sheets. The corporate bond market is suppressed, as USTreasury Bond supply has dominated. The capitalist engine for business expansion has sputtered and gone into reverse. The corporations see little prospect for expansion within the United States, where taxation and regulation are deemed oppressive. The main expansion is of federal deficits, which must be accommodated.


This is not Japan redux, but much worse, since the US has a trade gap and lacks an adequate industrial base. Comparisons are made by hack economists and sell-side analysts. They are incompetent. Notice that Japan forced investment from postal pensions and federal worker pensions, in order to sustain demand in a Jap Govt Bond that continues to operate as a bubble. Unlike Japan, the USTBond cannot persist since its bonds that securitize the yawning USGovt deficits must grow in mammoth volume. The USbond bubble cannot continue for a long period, since totally dependent upon debt monetization, the manifestation of hyper-inflation. The US will follow the Japanese practice, by forcing IRA funds and bank CD savings to enter the USTBond channel. The leverage is tax deductible status for income and FDIC depositor insurance. The USTBond bubble has finite life span.


Watch the canaries led by Morgan Stanley. They are screeching. Not only is Morgan Stanley seeing a sharp decline in its stock price and rising Credit Default Swap debt insurance, so is Goldman Sachs. The latter has lost its shine, its exalted image, its prestige. The CDSwap market is unique, a field played by very well informed professionals. This market accurately foretold of the 2008 disaster. The Lehman Brother stock value and CDSwap rate signaled correctly a systemic breakdown within the broad financial sector. Prepare for a repeat on US soil. The financial structures of Europe and the US are interconnected. The Wall Street banks have acted as swap lender of last resort to many European banks, a story not told.


A side note of value. A key source informs that UBS was targeted for takedown, victims of a trap centered on the European currency market. As a result, in the aftermath, they forfeited their gold. UBS is out of the gold picture. The rogue trader story is nonsense, a lie. The next target, so mentioned by the same source, is Goldman Sachs. The cross hairs are aimed squarely, the backdrop selected. Soon the GSax beast will walk into those crosshairs and the net will drop. The extent of their loss will be significant. The impact to their gold participation is unknown. Their phony story will be interesting though.



In September, the COMEX officials raised Gold futures margin requirements in a falling market, a repeat episode of what occurred in the first week of May. It was raised several times again, but was not well reported by the sleepy financial press. An anomaly has occurred. The Commitment of Traders shows very little if any abandonment by Speculators in Gold. It also shows a stunning drop in the net short position by Commercials. That adds up to a firm foundation for a V-shaped recovery in the ambushed Gold & Silver price, which the Jackass admits was much worse than expected from this vantage point. The stories of gold being sold to cover losses is poppycock. It was not sold on the physical side. The COMEX relied on their trusted time (dis)honored tool of naked shorting of the metals. The Big Four US banks continue to sell gold & silver they do not own, using metal contracts they do not post collateral toward. The COMEX is the grandest fraud among the major markets. Actually that is a close competition with the USTBond market reliant upon USFed hidden monetization and Wall Street Interest Rate Swap applications. The USDollar market is dominated by heavy handed activity from the Exchange Stabilization Fund, that notorious dark office accountable to nobody. The US stock market is dependent upon the USDept Treasury, which leads the Working Group for Financial Markets (aka Plunge Protection Team). Is any USfinancial market honest and free from corruption? Not at all!



Notice, in keeping with the theme of this article, that the COMEX decided to leave USTBond margins intact even though an obvious bubble. With the 10-year under 1.8%, the market has become a laughingstock, a farce, a joke, an embarrassment. The very powerful move in Gold from the $1550 base in the early summer to the $1900 level triggered a selloff. It had help with numerous COMEX margin hikes focused entirely on Gold. Some prefer to point out a 2008 redux. My view is no way a similarity. A strong ugly 25% decline in late 2008 and early 2009 resulted in the Gold locomotive downshifting into second gear. In the late summer 2011, a move of greater than 20% to a record high was canceled. The 2008 gold decline was like a move backward that took all the wind from the sails. The 2011 gold decline was like a move back, still to a high gear, that merely removed the summer gains. The Gold locomotive returned to a pause between fifth gear overdrive and the fast fourth gear. The comparison to 2008 is loaded with propaganda and inaccuracies. The strong established uptrend is as clear as the morning sunshine. The Gold price has returned to the middle range of the stable upchannel.


Gold is preparing for gigantic new destinations being stuffed with money. The money is tainted, like all past money dedicated as bank aid, economic stimulus, and more debt monetization (whether hidden or revealed). The next round will be very powerful in new monetary expansion. Gold is ready to jump quickly back toward the $2000 level. Notice the potential for a technical rebound that could be extremely quick, very exciting, but deadly to the system once again. A strong rebound move is likely from $1680 to $1820 in a flash, since no resistance is evident. The sudden move might take your breath away.


Some truly dangerous winds are blowing. Restrictions of gold purchase are being imposed in Central Europe. Wall Street has openly mentioned their menacing arbitrage targeted against Europe in exploitation of their financial crisis. The Mexican disintegration continues apace, with no coverage except the illicit weapons sales from the USDept Alcohol Tobacco & Firearms. The Mexican Peso is down to 14 per USDollar. The Saudi transition continues behind the curtains, as they adapt to a new Chinese protector in the Persian Gulf, and watch the global pendulum swing from an oil-based pivot to a gold-based pivot.Russia is busy preparing channels to Central Europe for commodity supply. That is not new, but the financial underpinning might be, since not based upon the USDollar. JPMorgan CEO Jamie Diamond bickers with the Canadians and overlord Swiss bankers. Perhaps is all show. Perhaps instead JPMorgan stands on far fewer legs than a couple years ago, and what we observe is twitching and teetering. Goldman Sachs CEO Lloyd Bunkfein struggles to avoid a perjury indictment. Lies to the Levin Committee might have come back to haunt him. They were blatant. The prestige of the US bankers is fast vanishing.



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.


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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 For personal questions about subscriptions, contact him at

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