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Derivatives Destroying the World

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Another day, another microscope on the financial world.

Today has started out calm, as once again the world (aided by the omnipresent PPT) is focused on “Will it?, Won’t it?” regarding the Greek bailout, and  “Is it?, Isn’t it?”a “credit event” as pertains to the CDS market.

Yesterday’s market decline was attributed to Greek politicians insisting on a referendum to decide whether to accept the proposed bailout plan, throwing a monkey-wrench into the formerly “controlled” situation.  Obviously, if Greece votes against accepting the severe austerity terms involved, it will exit the EU, default on its debt, and create a “credit event” sparking a chain of bank destruction across the Western world, PARTICULARLY in the U.S., where 97% of all derivative contracts are written (can you say JP Morgan?).

http://www.zerohedge.com/news/past-midnight-headlines-greece

We’ll soon see which path to disaster is ultimately taken, but something tells me the markets already know…

http://www.zerohedge.com/news/1-year-greek-yields-pass-200-first-time-ever

I only have about 15 “horrible headlines” listed below, which constitutes a “great day” in the current environment.  And the Fed will make another “statement” this afternoon, which is always “great news” because their judgment is so valued by the world, not to mention when coupled with PPT stock buying and Cartel PAPER gold and silver naked shorting.

I CANNOT EMPHASIZE ENOUGH how utterly futile this bailout plan will be if implemented, and how utterly catastrophic if it isn’t.  In the former scenario, the world buys a few weeks, or possibly months, before the END GAME commences, and in the latter, it starts NOW.

For the millionth time, the problem is NOT a lack of liquidity in the PIFIGS economies, it is utter, incurable insolvency across the ENTIRE Western world.  We are WAY past the point of no return for essentially every nation in Europe, as well as the United States, the UK, and many Eastern nations intrinsically tied to the West.  NOTHING will save these countries from default, whether they take the route of the “Austerity Default” (refusal to pay), the “Market Driven Default” (public markets refuse to buy sovereign bonds), or the “Hyperinflation Default” (ALL debt monetized).

Moreover, we have reached SATURATION of every “extend and pretend” tactic imaginable, such as PROPAGANDA SATURATION (the world is starting to ignore TPTB’s lies), DEBT SATURATION (‘nuf said), and MANIPULATION SATURATION (the “half-life” of new rigging programs is rapidly shrinking).  Per the latter, just ask the Japanese how well their currency intervention to weaken the yen is doing…

http://www.zerohedge.com/news/jpy-intervention-512bn-losses-well-spent

…even as the nation continues to melt down, both literally and figuratively…

http://www.zerohedge.com/news/remember-fukushima-its-back

As holder of the “world’s reserve currency”, the U.S. government can still avoid the “Hyperinflation Default” scenario, but at some point soon the bond vigilantes will overwhelm them, forcing the world to no longer PRETEND there is real, LEGITIMATE demand for U.S. Treasury bonds.  The PUBLISHED U.S. debt level is about to pierce $15 trillion, up nearly $700 billion since the debt ceiling debacle in August, and likely will rise by more than $1.5 trillion in 2012 alone.  Jim Willie, one of my top sources in the business, is currently forecasting a 2012 deficit of more than $2 trillion!

http://www.usdebtclock.org/

Moreover, per the below announcement, U.S. Treasury issuance is set to SOAR in the coming months, and continue rocketing higher until the aforementioned “bond vigilante moment” sets in, likely sometime in 2012.

http://www.zerohedge.com/news/us-plans-issue-846-billion-treasurys-next-6-months-35-more-previous-year

Despite the blatant LIES published by its government (2.5% GDP growth – LOL), the U.S. economy is in free fall.  The only reason the Fed is unlikely to announce an OFFICIAL QE3 program today is its fear of GOLD, the inflation barometer poised to rocket above $2,000/oz, sparking HYPERINFLATION fears.  Don’t worry, the Fed will still execute “Operation Twist”, as well as all sorts of “unofficial” QE MONEY PRINTING that they never report, and eventually will be FORCED to announced OFFICIAL QE, as the economy continues its collapse into the abyss.

“QE to Infinity” will be an American fact until the dollar collapses, as stopping for even ONE DAY would expose the nation to MASSIVE social unrest.  Just ask the 45.8 million Americans on food stamps, a number that seemingly rises each month…

http://www.zerohedge.com/news/us-food-stamp-usage-hits-new-record

Oh boy, here we go.  I got through just a few paragraphs before the next wave of horrible European news hit the tape.  The situation is as flammable as a gas can in a boiler room, and sparks are flying everywhere.  It looks like the €5 billion “trial balloon” EFSF bond issue, to be utilized to supplement the $1.4 trillion bailout fund, was PULLED off the market due to a lack of demand, per below.

Not only that, but the latest “rumor” that China will invest heavily in the fund has been deflated as well.  Talk about the world not understanding that “NO means NO.”

http://www.zerohedge.com/news/latest-china-bailout-rumor-crumbles-efsf-pulls-bond-due-market-conditions-france-bund-spread-re

Consequently, French bond spreads just EXPLODED to an ALL-TIME HIGH on rumors of a potential default (on the heels of yesterday’s Italian bond spread explosion), which I ASSURE you WILL occur in the not too distant future.  Unlike the U.S., which has an unfettered printing press at its disposal and holds hostage 61% of the world’s currency reserves, France and Italy, the second and third economies in the EU, are helpless.  They cannot print Euros to monetize their debts, as such action requires agreement of the ECB, which happens to be controlled by Germany, Europe’s largest creditor, and a nation steeped in hyperinflation FEARS.

Thus, it is only a matter of time before an “Austerity Default” or “Market Driven Default” is forced on Europe, in my view highly likely by the end of the first quarter of 2012.  I believe the Germans, Dutch, and other stronger nations will bolt from the Euro like scalded cats once the END GAME commences, leaving the PIFIGS and other weaker nations to default via one, or both, of the above scenarios.  Once this occurs, these lesser nations will be forced back to their former currencies – such as the franc, lira, punt, drachma, peseta, and escudo – resulting in hyperinflation across most of Europe, which will rapidly rise up the totem pole of INSOLVENT nations until it reaches the TOP, the aforementioned “license to print” nations such as the UK and U.S..

http://www.zerohedge.com/news/france-downgrade-rumor-france-bund-spread-explodes

The topic of today’s RANT is one that nearly all my comrades-in-gold -blog-arms are focusing on this morning, DERIVATIVES.  Following the 1999 repeal of Glass-Steagall, financial Derivatives have become the “invisible hand” behind the global economic collapse, tying the fates of banks, municipalities, and sovereign nations together, the equivalent of creating a Borg “hive mind”, for all you Trekkies out there.  Unfortunately, as occurred in “Next Generation – Episode 123″, inserting a VIRUS into just a single Borg DESTROYS the entire hive, EXACTLY what derivatives such as Credit Default Swaps effectuate.

According to my IDOL Jim Sinclair, who not only is “Mr. Gold” but “Mr. Derivative” as well, 97% of all credit default swaps written are carried by the major US banks, and just four banks hold nearly ALL such contracts – JP Morgan, Bank of America, Citibank, and Goldman Sachs.  Think those four CRIMINAL operations will survive what’s coming?

Sinclair was talking about the upcoming derivatives contagion before I had even HEARD of these balance sheet-seeking missiles, and I would bet everything I own (actually, I already am) that he will be right.

http://www.zerohedge.com/news/five-banks-account-96-250-trillion-outstanding-derivative-exposure-morgan-stanley-sitting-fx-de

The reason for the attention on derivatives this week is the collapse of MF Global, a vile organization few had ever heard of (including myself), operating in the “shadow world” where only thieves, racketeers, and other forms of vampire squid exist.  MF’s “party line” is it was done in by exposure to European sovereign debt, but that makes little sense given the nature of their business as a DERIVATIVES BROKER.  More likely, it was destroyed by exposure to CREDIT DEFAULT SWAPS gone awry, such as Greek CDS’ when the ISDA decided a “voluntary 50% debt haircut” does not constitute a “credit event.”

The article below, published on ZeroHedge in September, debunks the ridiculous “common knowledge” that true derivatives exposure is much less than published due to “bilateral netting.”  Bilateral netting is a misleading, Wall Street-created fantasy espousing if you are long $100 billion of CDS contracts and simultaneously short $100 billion contracts, you thus have ZERO exposure because you are “hedged.”

Let’s ignore the fact that the actual MATH doesn’t tell the same story, particularly when one is long certain contracts, and short others.  Nor that COUNTERPARTY risk is completely ignored by such shallow analysis.  All one really needs to do is look at what happened to AIG (remember them?) when they were massively exposed, on BOTH the long AND short side of CDS contracts, just three years ago.  Or, for that matter, “derivatives broker” MF Global!

Yes, JP Morgan et al ARE in fact fully exposed to HUNDREDS OF TRILLIONS worth of CDS contracts, and I ASSURE you once the European contagion commences you will see the all-encompassing desructive force of this “fully armed and operational battle station” (sorry, another Star Wars reference).

http://www.zerohedge.com/news/how-us-banks-are-lying-about-their-european-exposure-or-how-bilateral-netting-ends-bang-not-whi

Yes, MF Global, one of the world’s largest derivative brokers, vanished into thin air just moments after emerging from the primordial ooze, and only time will tell if its bankruptcy proves to be the inevitable “Lehman moment” sparking commencement of the END GAME.  The Dow fell nearly 600 points in the two days since this announcement, with sovereign yields, swap spreads, and market volatility soaring through the roof (although, as always, the media and Wall Street blame Greece).

http://www.zerohedge.com/news/desperate-demand-short-term-crash-protection-pushes-implied-correlation-above-100

http://www.zerohedge.com/news/liquidity-scramble-begins-mf-commingling-aftermath

As for MF Global itself, apparently its EVIL CEO John Corzine yesterday ADMITTED MF embezzled roughly $700 million of client funds to cover its OWN LOSSES, a shocking turn of events for a supposedly “tier one” firm.  Gee, if a John Corzine-led firm is operating in this illicitly criminal manner, I wonder if anything else like that is going on around Wall Street…or in “the City”…or Washington…

http://www.zerohedge.com/news/jon-corzine-meet-bubba

And speaking of Washington, it looks like John Corzine, formerly CEO of Goldman Sachs, the most villainous, corrupt firm in history, and governor of New Jersey, one of the most tax-ridden, debt-infested municipalities on earth, has been secretly working with his “old pal” Barrack Obama on getting him re-elected, presumably eyeing the Treasury Secretary position which will shortly be vacated by Tim Geithner, by hook or crook.  Seriously readers, you simply CANNOT make this stuff up!

http://mobile.gothamist.com/2011/07/05/corzine_to_obama_if_i_raise_enough_1.php

While enjoying today’s Fed announcement PPT/Cartel lovefest, remember that things will get WORSE each and every day until the Western banking and currency system collapses, coming soon to a nation near you.

Despite plummeting stock markets and blindingly blatant Cartel attacks on PAPER gold and silver, I’m happy to say bullion demand picked up significantly during the past two days.  As a whole, the global population is slowly but surely catching on to the difference between PAPER and PHYSICAL gold, and it won’t be too long until the CRACKS IN THE DYKE turn into a full-out DAM BREAK, especially now that there are SEVEN BILLION PEOPLE in the world.

http://www.foxnews.com/scitech/2011/10/31/7-billionth-person-born-or-maybe-more-or-less-who-knows/

PROTECT YOURSELF, and do it NOW!

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