Zero Hedge: Chinese collapse and the price of Gold

A little over a month ago, we reported that following a year of record-shattering imports, China finally surpassed India as the world's largest importer of physical gold. This was hardly a surprise to anyone who has been following our coverage of the ravenous demand for gold out of China, starting in September 2011, and tracing it all the way to the present.

China's apetite for physical gold, which is further shown below focusing just on 2012 and 2013, has been estimated by Goldman to amount to over $70 billion in bilateral trade between just Hong Kong and China alone.

Yet while China's gold demand is acutely familiar one question that few have answered is just what is China doing with all this physical gold, aside from filling massive brand new gold vaults of course. And a far more important question: how does China's relentless buying of physical not send the price of gold into the stratosphere.

We will explain why below.

First, let's answer the question what purpose does gold serve in China's credit bubble "Minsky Moment" economy, where as we showed previously, in just the fourth quarter,some $1 trillion in bank assets (mostly NPLs and shadow loans) were created  out of thin air.

For the answer, we have to go back to our post from May of 2013 "The Bronze Swan Arrives: Is The End Of Copper Financing China's "Lehman Event"?", in which we explained how China uses commodity financing deals to mask the flow of "hot money", or the one force that has been pushing the Chinese Yuan ever higher, forcing the PBOC to not only expand the USDCNY trading band to 2% recently, but to send the currency tumbling in an attempt to reverse said hot money flows.

One thing deserves special notice: in 2013 the market focus fell almost exclusively on copper's role as a core intermediary in China Funding Deals, which subsequently was "diluted" into various other commodities after China's SAFE attempted a crack down on copper funding, which only released other commodities out of the Funding Deal woodwork. We discussed precisely this last week in "What Is The Common Theme: Iron Ore, Soybeans, Palm Oil, Rubber, Zinc, Aluminum, Gold, Copper, And Nickel?"

We emphasize the word "gold" in the previous sentence because it is what the rest of this article is about.

Let's step back for a minute for the benefit of those 99.9% of financial pundits not intimate with the highly complex concept of China Commodity Funding Deals (CCFDs), and start with a simple enough question, (and answer.)  

Just what are CCFDs?

The simple answer: a highly elaborate, if necessarily so, way to bypass official channels (i.e., all those items which comprise China's current account calculation), and using "shadow" pathways, to arbitrage the rate differential between China and the US.

As Goldman explains, there are many ways to bring hot money into China. Commodity financing deals, overinvoicing exports, and the black market are the three main channels. While it is extremely hard to estimate the relative share of each channel in facilitating the hot money inflows, one can attempt to "ballpark" the total notional amount of low cost foreign capital that has been brought into China via commodity financing deals.

While commodity financing deals are very complicated, the general idea is that arbitrageurs borrow short-term FX loans from onshore banks in the form of LC (letter of credit) to import commodities and then re-export the warrants (a document issued by logistic companies which represent the ownership of the underlying asset) to bring in the low cost foreign capital (hot money) and then circulate the whole process several times per year. As a result, the total outstanding FX loans associated with these commodity financing deals is determined by:

the volume of physical inventories that is involved

commodity prices

the number of circulations

A "simple" schematic involving a copper CCFDs saw shown here nearly a year ago, and was summarized as follows.

As we reported previously citing Goldman data, the commodities that are involved in the financing deals include copper, iron ore, and to a lesser extent, nickel, zinc, aluminum, soybean, palm oil, rubber and, of course, gold. Below are the desired features of the underlying commodity:

• China is heavily reliant on the seaborne market for the commodity
• the commodity has relatively high value-to-density ratio so that the storage fee and transportation cost are relatively low
• the commodity has a long shelf life, so that the underlying value of the commodity will not depreciate significantly during the financing deal period
• the commodity has a very liquid paper market (future/forward/swap) in order to enable effective commodity price risk hedging.

Here we finally come to the topic of gold because gold is an obvious candidate for commodity financing deals, given it has a high value-to-density ratio, a well-developed paper market and very long "shelf life." Curiously iron ore is not as suitable, based on most of these metrics, and yet according to recent press reports seeking to justify the record inventories of iron ore at Chinese ports, it is precisely CCFDs that have sent physical demand for iron through the proverbial (warehouse) roof.

Gold, on the other hand, is far less discussed in the mainstream press in the context of CCFDs and yet it is precisely its role in facilitating hot money flows, perhaps far more so than copper and even iron ore combined, that is so critical for China, and explains the record amount of physical gold imports by China in the past three years.

Chinese gold financing deals are processed in a different way compared with copper financing deals, though both are aimed at facilitating low cost foreign capital inflow to China. Specifically, gold financing deals involve the physical import of gold and export of gold semi-fabricated products to bring the FX into China; as a result, China’s trade data does reflect, at least partially, the scale of China gold financing deals. In contrast, Chinese copper financing deals do not need to physically move the physical copper in and out of China as explained last year so it is not shown in trade data published by China customs.

In detail, Chinese gold financing deals includes four steps:

1. onshore gold manufacturers pay LCs to offshore7 subsidiaries and import gold from bonded warehouses or Hong Kong to mainland China – inflating import numbers
2. offshore subsidiaries borrow USD from offshore banks via collaterizing LCs they received
3. onshore manufacturers get paid by USD from offshore subsidiaries and export the gold semi-fabricated products to bonded warehouses – inflating export numbers
4. repeat step 1-3

This is shown in the chart below:

As shown above, gold financing deals should theoretically inflate China’s import and export numbers by roughly the same size. For imports, they inflate China’s total physical gold imports, but inflate exports that are mainly related to gold products, such as gold foils, plates and jewelry. Sure enough, the value of China’s imports of gold from Hong Kong has risen more than 10 fold since 2009 to roughly US$70bn by the end of 2013 while exports of gold and other products have increased by roughly the same amount (shown below). This is in line with the implication of the flow chart on Chinese gold financing deals: the deals inflate both imports and exports by roughly equal size.

Given this, that the rapid growth of the market size of gold trading between China and Hong Kong created from 2009 (less than US$5bn) to 2013 (roughly US$70bn) is most likely driven by gold financing deals.

However, a larger question remains unknown, namely that as Goldman observes, "we don’t know how many tons of physical gold are used in the deals since we don’t know the number of circulations, though we believe it is much higher than that for copper financing deals."

Recall the flowchart for copper funding deals:

1. Step 1) offshore trader A sells warrant of bonded copper (copper in China’s bonded warehouse that is exempted from VAT payment before customs declaration) or inbound copper (i.e. copper on ship in transit to bonded) to onshore party B at price X (i.e. B imports copper from A), and A is paid USD LC, issued by onshore bank D. The LC issuance is a key step that SAFE’s new policies target.
2. Step 2) onshore entity B sells and re-exports the copper by sending the warrant documentation (not the physical copper which stays in bonded warehouse ‘offshore’) to the offshore subsidiary C (N.B. B owns C), and C pays B USD or CNH cash (CNH = offshore CNY). Using the cash from C, B gets bank D to convert the USD or CNH into onshore CNY, and trader B can then use CNY as it sees fit.
3. Step 3) Offshore subsidiary C sells the warrant back to A (again, no move in physical copper which stays in bonded warehouse ‘offshore’), and A pays C USD or CNH cash with a price of X minus $10-20/t, i.e. a discount to the price sold by A to B in Step 1.
4. Step 4) Repeat Step 1-Step 3 as many times as possible, during the period of LC (usually 6 months, with range of 3-12 months). This could be 10-30 times over the course of the 6 month LC, with the limitation being the amount of time it takes to clear the paperwork. In this way, the total notional LCs issued over a particular tonne of bonded or inbound copper over the course of a year would be 10-30 times the value of the physical copper involved, depending on the LC duration.

In other words, the only limit on the amount of leverage, aka rehypothecation of copper, was limited only by letter of credit logistics (i.e. corrupt bank back office administrator efficiency), as there was absolutely no regulatory oversight and limitation on how many times the underlying commodity can be recirculated in a CCFD....And gold is orders of magnitude higher!

Despite the uncertainty surrounding the actual leverage and recirculation of the physical, Goldman has made the following estimation:

We estimate, albeit roughly, that there are c.US$81-160 bn worth of outstanding FX loans associated with commodity financing deals – with the share of each commodity shown in Exhibit 23. To put it into context, the commodity-related outstanding FX borrowings are roughly 31% of China’s short-term FX loans (duration less than 1 year) .

Putting the estimated role of gold in China's primary hot money influx pathway, at $60 billion notional, it is nearly three time greater than the well-known Copper Funding Deals, and higher than all other commodity funding deals combined!

Under what conditions would Chinese commodity financing deals take place. Goldman lists these as follows:

• the China and ex-China interest rate differential (the primary source of revenue),
• CNY future curve (CNY appreciation is a revenue, should the currency exposure be not hedged),
• the cost of commodity storage (a cost),
• the commodity market spread (the spread is the difference between the futures
• China’s capital controls remain in place (otherwise CCFD would not be necessary).

All of these components are exogenous to the commodity market, except one – the commodity market spread. This reveals an important point that financing deals are, in general, NOT independent of commodity market fundamentals. If the commodity market moves into deficit, or if the financing demand for the commodity is greater than its finite supply of above ground inventory, the commodity market spread adjusts to disincentivize financing deals by making them unprofitable (thus making the physical inventory available to the market).

Via ‘financing deals’, the positive interest rate differential between China and ex-China turns commodities such as copper from negative carry assets (holding copper incurs storage cost and financing cost) to positive carry assets (interest rate differential revenue > storage cost and financing cost).This change in the net cost of carry affects the spreads, placing upward pressure on the physical price, and downward pressure on the futures price, all else equal, making physical-future price differentials higher than they otherwise would be.

* * *

That bolded, underlined sentence is a direct segue into the second part of this article, namely how is it possible that China imports a mindblowing 1400 tons of physical, amounting to roughly $70 billion in notional, demand which under normal conditions would send the equilibrium price soaring, and yet the price not only does not go up, but in fact drops.

The answer is simple: the gold paper market.

And here is, in Goldman's own words, is an explanation of the missing link between the physical and paper markets. To be sure, this linkage has been proposed and speculated repeatedly by most, especially those who have been stunned by the seemingly relentless demand for physical without accompanying surge in prices, speculating that someone is aggressively selling into the paper futures markets to offset demand for physical.

Now we know for a fact. To wit from Goldman:

From a commodity market perspective, financing deals create excess physical demand and tighten the physical markets, using part of the profits from the CNY/USD interest rate differential to pay to hold the physical commodity. While commodity financing deals are usually neutral in terms of their commodity position owing to an offsetting commodity futures hedge, the impact of the purchasing of the physical commodity on the physical market is likely to be larger than the impact of the selling of the commodity futures on the futures market. This reflects the fact that physical inventory is much smaller than the open interest in the futures market. As well as placing upward pressure on the physical price, Chinese commodity financing deals ‘tighten’ the spread between the physical commodity price and the futures price .

Goldman concludes that "an unwind of Chinese commodity financing deals would likely result in an increase in availability of physical inventory (physical selling), and an increase in futures buying (buying back the hedge) – thereby resulting in a lower physical price than futures price, as well as resulting in a lower overall price curve (or full carry)." In other words, it would send the price of the underlying commodity lower.

We agree that this may indeed be the case for "simple" commodities like copper and iron ore, however when it comes to gold, we disagree, for the simple reason that it was in 2013, the year when Chinese physical buying hit an all time record, be it for CCFD purposes as suggested here, or otherwise, the price of gold tumbled by some 30%! In other words, it is beyond a doubt that the year in which gold-backed funding deals rose to an all time high, gold tumbled. To be sure this was not due to the surge in demand for Chinese (and global) physical. If anything, it was due to the "hedged" gold selling by China in the "paper", futures market.

And here we see precisely the power of the paper market, where it is not only China which was selling specifically to keep the price of the physical gold it was buying with reckless abandon flat or declining, but also central and commercial bank manipulation, which from a "conspiracy theory" is now an admitted fact by the highest echelons of the statist regime. and not to mention market regulators themselves.

Which answers question two: we now know that of all speculated entities who may have been selling paper gold (since one can and does create naked short positions out of thin air), it was likely none other than China which was most responsible for the tumble in price in gold in 2013- a year in which it, and its billionaire citizens, also bought a record amount of physical gold (much of its for personal use of course - just check out those overflowing private gold vaults in Shanghai.

* * *

This brings us to the speculative conclusion of this article: when we previously contemplated what the end of funding deals (which the PBOC and the China Politburo seems rather set on) may mean for the price of other commodities, we agreed with Goldman that it would be certainly negative. And yet in the case of gold, it just may be that even if China were to dump its physical to some willing 3rd party buyer, its inevitable cover of futures "hedges", i.e. buying gold in the paper market, may not only offset the physical selling, but send the price of gold back to levels seen at the end of 2012 when gold CCFDs really took off in earnest.

In other words, from a purely mechanistical standpoint, the unwind of China's shadow banking system, while negative for all non-precious metals-based commodities, may be just the gift that all those patient gold (and silver) investors have been waiting for.  This of course, excludes the impact of what the bursting of the Chinese credit bubble would do to faith in the globalized, debt-driven status quo. Add that into the picture, and into the future demand for gold, and suddenly things get really exciting.

If you print money, there’s inflation.

What is happening in Argentina provides a valuable lesson in why governments in every country on earth control the education of the nation’s children.

Argentina is suffering the ravages of government debasement of the currency — i.e., inflation, the process by which government pays for its ever-increasing debts and bills by simply printing more paper currency. The expanded money supply results in a lower value of everyone’s money, which is reflected in the rising prices of the things that money buys.

According to the New York Times, last year prices in Argentina rose nearly 30%. This year, they’re expected to increase by 45%.

Not surprisingly, the government’s inflation of the money supply is causing economic chaos within Argentine society. From butchers who are now posting price increases on scraps of paper, to women filing for increases in alimony payments, to café owners who are selling less, to wholesalers who are having trouble pricing imported goods, the government’s monetary debauchery spares virtually no one.

So, what does all this have to do with government schools?

Well, ask yourself: Why do governments finance their expenditures with inflation rather than simply by raising taxes?

The answer is a simple one: With taxes, everyone knows that the government’s the culprit because people can see that it’s a government agency that is collecting the taxes. With inflation, government can blame what is happening on the private sector, where prices are rising in response to the government’s continued debasement of the currency.

And that’s precisely what they teach children in public (i.e., government) schools. They teach them that it is greedy, rapacious people in the private sector, not the government, who are to blame for the rising prices brought on by inflation. They teach them that it is the job of the government to protect people from the greed and rapaciousness of the private sector by doing such things as imposing price controls on businessmen, sellers, and producers.

Inflation is one of the greatest government scams in history. The government inflates the money supply to pay for ever-increasing debts and expenditures. Prices of most everything naturally begin to rise in response to the debased value of the money. The government blames the rising prices on the private sector. Public-school graduates are taught to support the government and castigate the private sector.

Through it all, government officials know exactly what they are doing. They know that it’s their central bank that is producing the problem by expanding the money supply. But they also know that most of the citizens are graduates of public schools, which teach that inflation is caused by private-sector people who are greedily raising their prices. The officials know that all they have to do is focus the blame on the private sector and the citizenry will immediately fall into line and see the government as their savior rather than the entity that is actually the cause of the problem.

By imposing price controls on the private sector, the government makes it a criminal or civil offense to raise prices. Then, officials encourage citizens to become snitches, exhorting them to report unlawful price increases to the authorities.

The price controls inevitably mean shortages. That’s because producers can’t make a profit if they are forced to sell at a price below their costs. The citizenry then get angry over the shortages and condemn the greedy, rapacious businessmen for being “hoarders.” Of course, government officials love to see the process working.

You’ll recall that this was what happened in the United States during the 1970s, when price controls were imposed on gasoline. The result? Shortages and long lines at the gasoline stations, which public school graduates, not surprisingly, blamed on the oil companies and gas station owners.

Through it all, the U.S. government played the innocent. It even had a Whip Inflation Now campaign, acting as if inflation was caused by someone other than the government. The citizenry loved the WIN campaign and participated in it enthusiastically.

It’s no different in Argentina. As part of its campaign to blame inflation on the private sector, the government has imposed a wide range of price controls, leading to shortages and even more economic chaos. Government billboards exhort people to snitch on businesses that are unlawfully raising their prices.

Playing her important role in the scam, Argentine President Christina Kirchner tells the citizens, “We have to monitor prices. Don’t let them rob you.”

Not suspecting that government is the cause of the chaos, the citizenry love the price controls and their new-found role as snitches for the government. According to the Times, two engineering students even devised an app that enables shoppers to see whether grocery stores are complying.

However, there are some Argentinians who see through the scam, just as libertarians saw through the Whip Inflation Now scam here in the United States here in the 1970s. A retired 77-year-old accountant named Jose, who declined to give his last name, no doubt out of fear of government retaliation, showed that he had somehow broken through the government’s indoctrination: “The campaign is useless. It’s a rule that’s older than the world. If you print money, there’s inflation.”

How is it that Jose sees the truth behind the government’s inflation scam while others continue to fall for it? Who knows? Why is it that American libertarians see through the inflation scam here at home while so many others continue to fall for it? Public schooling works well but it’s not foolproof.

Why the government is responsible for our high food prices

So today it is time to look back at one of my favourite subjects, the Public Markets, founded on its current site in 1804 and left more or less untouched since it was rebuilt in 1884. It is now 2014 so our ancestors 130 years ago built something which has stood the test of time and weathered everything that has happened in our island in all that time. The Public Markets Law and Regulations are available on the Jersey Law website. 

Article 3 of the Law states 

"The States of Jersey have the right to make regulations for the order, policing and maintenance [of the Markets], and may, as in the past, rent shops, stalls and floorspace in order to meet the expenses of the administration and maintenance of markets.

States are also authorized to establish regulations for the control and maintenance of Public Abattoirs, and to regulate the flow of meat, both within and outside [the] markets.  

Regulations emanating under this Article shall remain in force until repealed or modified."

Expressio Unius Est Exclusio Alterius means that because they list administration and maintenance they can only use the proceeds of the rents for those purposes and no other.

There is a simple beauty in this law, it is far more simple than modern laws and yet is far more all-encompassing. It states what is to be done and how it is to be paid for. Modern laws separate the act of collecting money from the act of spending money.

Article 2 of the Regulations states

"2 Inspector of Markets 

(1) The Minister shall appoint an Inspector of the Markets (hereinafter referred to as the “Inspector”) to superintend the general administration of the Markets, and to perform such other duties as are imposed upon the Inspector by these Regulations, and such appointment shall be on such conditions as the Minister may determine.

Provided that the Inspector of the Markets in office at the time of the coming into force of these Regulations shall be deemed to have been appointed to that office by virtue of these Regulations. 

(2) The Inspector shall, upon appointment, take oath before the Royal Court well and faithfully to discharge the duties of the Inspector’s office."

So the legal position is quite clear, but in order to overcome the limit to the authority of the government included within the law they have simply increased the cost of administration and maintenance beyond that which is indicated as demonstrated by the following diagram.

So the rents charged are used to pay for (in whole or in part) the wages of five unnecessary managers/supervisors, significantly increasing the cost of the rents on the Public Markets beyond that which was intended by the Law.

You may consider that the Inspector of Markets needs such supervision, but I would contend that he is supervised sufficiently already by the 47 Members of the Public who are the leaseholders of the stalls, shops and floorspace in the market.

The regulations stipulate that the Inspector must prepare accounts annually, in a similar manner to the Parishes of the Island, the 47 small businessmen with a vested interest in the efficient administration of the Markets as well as the individual experience and business know how will offer a far more effective and far cheaper method of oversight than anything paid Public Servants can provide. Just as our Parishes are more efficient than our government thanks to the oversight of parishioners, albeit largely on an annual basis, the same would be true for the Public Markets.

If States Members were genuinely concerned about the price of food, then they would be examining ways in which to bring down the cost of providing that service, instead they are increasing the cost of the service with unnecessary government.

Jersey government costs 15% more than the UK

I have just been switched onto fibre broadband and I am greatly enjoying the increase speed of browsing, kudos to Mr Ozouf however he may not enjoy the results of that particular innovation.

Recently the JCRA produced their report on the relative price of retail goods in Jersey compared to the UK and concluded (in the papers at least) that Jersey was 20% more expensive, except for clothing, shoes and accessories (my business) which is 8% cheaper.

That got me thinking... I wonder how competitive our government is and I wonder if that has any effect on retail prices in Jersey?

We shall be referring to the UK government expenditure figures HERE
And the Jersey GROSS government figures HERE on page 4

So first let's calculate the headline figure... £11,236.31 per head in the UK and £8,340.00 in Jersey but that's a little unfair as they are not like for like figures.

So from out of the UK (who kindly provide Defence, Foreign Affairs free of charge for us) we will strip out the following:

Interest £779.34 per person
Defence £729.26 per person
Pensions £2,253.52 per person (these are not included in States of Jersey expenditure as they come from the SchutzStaffel Fund)

And we are down to £7,474.18 per person for the UK

We need to add something on for our local government (our parishes) I could only find two figures - St Saviour spent £1.5 million in 2013 and St Helier spent £7.6 million in 2008 so using some not so certain mathematics we arrive at a figure of £253.33 per person

And we are up to £8,593.33 per person in Jersey.

So Jersey's government is 15% more expensive than the UK's.

Compared on a departmental basis there are some even more shocking comparisons

Health spending in Jersey is 1,111% of the UK's spending per head
Education spending in Jersey is 229% of the UK's spending per head
Welfare & Housing is 86% of the UK's spending per head

Has Ozouf served 'the Public Interest'?

 Treasury Minister Philip Ozouf 

One of the most curious features of the Ozouf treasury is the 'we must make a return for the Public on their assets'. This sounds almost exactly like the duties of the director of a company who must, 'make a return for the shareholders'.

There is a slight difference though, firstly the shareholders of a company may or may not also be customers of the company, secondly shareholders have voluntarily invested their savings in those shares and may at any time sell those shares (assuming they can find someone to buy them). They would also expect to see some sort of monetary return of that investment coming into their personal bank accounts, not into the bank account of the stockbroker who bought the shares for them.

Another term for a shareholder, is a member.

Members of the Public by contrast are only members of choice, notionally. No one ever asked them if they wanted to join, there is no obvious mechanism for leaving the association other than taking the ubiquitous 'boat in the morning'. Members of the Public often have no choice but to be customers of the 'the Public Service', such custom being enforced with the threat of financial penalty and/or incarceration in prison.

Looking to one specific area of island life, telecoms, I will show that actually the 'return for the public' amounts to little more than a tax on the public.

Once upon a time there was just one monopoly which operated the telecoms infrastructure in Jersey, Jersey Telecoms. It was and is 100% owned by the Public of Jersey with the administration entrusted to a committee of States Members.

It muddled through, breaking even with a small contingency held in reserve. It was more a public service than a profit making venture.

The first step was to corporatise JT, this process meant that the purpose of the company was now no longer to provide a public service to the people of Jersey but to generate a return for its shareholders.

This had the joyous double advantage of allowng the States to appoint directors, on director's salaries to oversee the operation, thus increasing the cost of the telecoms service to the Public. The very people who are the shareholders. Of course any dividends paid to the Public, were not paid to the Public, but to the government's general reserve. The same reserve in which income tax, GST and Impots are all collected and distributed to the various departments. Looks like a tax, right? And since our taxes never went down as result, it looks even more like a tax.

The next development was the introduction of 'competition'. Now normally competition would naturally occur in any market in which there was an opportunity for a new entrant to make a living. Any large company holds a substansial amount of redundancy within it, when compared to a sole trader, which should be sufficient to allow new entrants to enter the market and make a living, forcing down the cost of the service and providing the consumer with value for money.

Instead 'competition' was launched with the birth of the Jersey Competition and Regulatory Authority, a massive quango (quasi-autonomous non-governmental organisation) funded initially directly by the public but also with annual fees paid by the telecoms companies.

Those fees led to increases in the cost of telecoms services.

The principal role of the JCRA is to ensure competition. But the only way to ensure competition is to ensure that all telecoms companies could make sufficient profit not only to fund their operations, but also to fund the JCRA's operations and also generate a profit. They do this by price fixing. All telecoms companies are required to have their charges approved by the JCRA.

You may think that is great, and it does obviously prevent prices from rising too high, but it also prevents prices from falling so low that the least efficient company, which remains Jersey Telecoms to this day, would no longer be able to remain in the market.

Genuine competition is prohibited as the government only allows network to be in place, that one of the telecoms companies also owns the network is a barrier to competition and to fair pricing. Competition would be improved if the network were maintained by one company which dealt only with operators and it was the operators who dealt with the consumers. But as long as the price of the network was set by the government by its quango, the government would in effect set the price of telecoms in Jersey. If they wanted to make a significant return from the investment then there would be nothing to stop them.

Only 'approved' engineers are allowed to work on the network, if the network tendered repairs and engineering to a number of independent engineers rather than to their own staff, then the opportunity for competition in the cost of network maintenance would lower the cost.

So looking at the whole process as one giant leap, Jersey has moved from a telecoms system which was provided as a public service at low cost with low profit to a telecoms market which generates a substansial profit for 'the Public', supports an entire Quango, the JCRA, and allows two non-public owned companies to operate and make a profit sufficient to justify their continuing operation.

Who ultimately pays for all of this? The Public. Perhaps now you understand why your telecoms bills are so much higher than they used to be.

So please explain to me how all this has been in 'the Public Interest'?

A Liberty Manifesto

• I wish the freedom to live my life in any peaceful way I choose, and to honour and respect the peaceful choices you make.
• I believe you should be free to do as you choose with your own life and property, as long as you don’t harm the person or property of others.
• I want a caring, people-centred approach to politics.
• I want to break the chains of poverty, to enable the disabled, to live in a content community.
• I want a system which encourages us all to discover the best within ourselves, and to make the most of it, to unleash the positive creative powers of each individual and to create a peaceful, prosperous world. 
• I want to solve community issues with community solutions, not with government.
• Politicians too frequently forget that their laws and regulations affect real human beings. They should never lose sight of the fact that each individual is unique and has great potential. 
• A ‘safety net’ is essential if individuals are to be encouraged to grow, but it should not be a cage from which escape is impossible.
• As government spending has risen, so has poverty. The bureaucracy has no incentive to lift people from dependency and every incentive to increase their budgets and power.
• By allowing people to keep what they earn, wealth goes directly into the private sector, businesses create more jobs and charitable giving increases.
• The rich collude with government to take your property through eminent domain and taxation. 
• A strong government always becomes an instrument of privilege. 
• The rich can exploit their resources to influence the government to squash competition and receive special favours making it nearly impossible for us to lift ourselves up by our bootstraps.
• Static, monolithic bureaucracies generally serve to enrich the privileged and damage individuals with unintended consequences. They fail to live up to their grand promises more often than not.
• History has shown that governments ultimately result in suffering and poverty for the majority and privilege for the few.
• Stronger property rights and a weaker government would weaken the privileged and benefit all individuals and the whole community.
• I want to empower individuals to take control over their own lives, not simply because it is the moral thing to do, but because it results in the most dynamic, prosperous, content and peaceful community possible.

Those in power possess the pretense of knowledge.

Higher equity prices will boost consumer wealth and help increase confidence, which can spur spending. — Ben Bernanke, 2010

Across all financial media, political parties, and among most mainstream economists, the “wealth effect” is noted, promoted, and touted. The refrain is constant and the message seemingly simple: by increasing people wealth through rising stock and housing prices, the populace will increase their consumer spending which will spur economic growth. Its acceptance is as widespread as its justification is important, for it provides the rationale for the Federal Reserve’s unprecedented monetary expansion since 2008. While critics may dispute the wealth effect’s magnitude, few have challenged its conceptual soundness. Such is the purpose of this article. The wealth effect is but a mantra without merit.

The overarching pervasiveness of wealth effect acceptance is not wholly surprising, for it is a perfect blend of the Monetarist and Keynesian Schools. While its exact parentage and origin appears uncertain, its godfather is surely Milton Friedman who published his permanent income theory of consumption in 1957. In bifurcating disposable income into “transitory” and “permanent” income, Friedman argued the latter dictates our spending and consists of our expected income in perpetuity. If consumer spending is generated by expected income, then surely it must also be supported by current wealth?

But this may or may not be true. It will vary across time, place, and among various economic actors whose decisions about consumer spending are dictated by their time preferences. And time preferences — the degree to which an individual favors a good or service today (consumption) relative to future enjoyment — take into account far more variables than the current, unrealized wealth reported in brokerage statements and housing appraisals.

Regardless as to whether or not increased wealth will actually spur increased consumer spending, the most important component of the wealth effect is the assumption that increased consumer spending stimulates economic growth. It is this Keynesian concept which is critical to the wealth effect’s validity. If increased consumer spending fails to stimulate the economy, the theory of the wealth effect fails. Wealth effect turns into wealth defect.

Will increased consumer spending improve the economy? On one side of the argument, we have the aggregate individual conclusions of hundreds of millions of economic actors, each acting in their own best interest. These individuals and businesses are attempting to reduce consumer spending and increase savings.

Dissenting from their views are the seven members of the Board of Governors of the Federal Reserve. Each member believes in the paradox of thrift — the belief that increased savings, while beneficial for any particular economic actor, have deleterious effects for the economy as a whole. The paradox of thrift can essentially be described as such: decreased consumer spending lowers aggregate demand which reduces employment levels which negatively affects consumption which in turn lowers aggregate demand. The paradox predicts an economic death spiral from diminished demand. And mainstream economists believe we were (and potentially are) mired in such a spiral. As noted econo-sadist Paul Krugman noted in 2009: “we won’t always face the paradox of thrift. But right now it’s very, very real.”

The inverse of this “reality” predicts flourishing economic prosperity when a society increases its consumer spending. But history suggests the opposite: it is higher savings rates which lead to economic prosperity. Examine any economic success story such as modern China, nineteenth century America, or post-World War II Japan and South Korea: did their economic rise derive from unbridled consumption, or strict frugality? The answer is self-evident: it is the savings from the curtailment of consumption, combined with minimal government involvement in economic affairs, which generates economic growth.

So why do so many “preeminent” economists falsely believe in the paradox of thrift, and thus the wealth effect? It is because of their mistaken understanding of the nature of savings. The Austrian economist Mark Skousen addressed this in writing:


Savings do not disappear from the economy; they are merely channeled into a different avenue. Savings are spent on investment capital now and then spent on consumer goods later.

Savings are spent. Not directly by consumers on electronics and espressos, but indirectly by businesses via banks on more efficient machinery and capital expansions. Increased savings may (initially) negatively affect retail shops, but it benefits producers who create the goods demanded from the increased pool of savings. On the whole, the economy is more efficient and prosperous.

Does this economic maxim hold even when the economy is in a recession? Even more so. As all Austrian economists know, business cycles derive from government manipulation of the money supply which artificially lowers and distorts the structure of interest rates. To minimize the length and severity of a recession, economic actors should save more which will reduce the gap between artificial and natural rates of interest.

Regrettably, this is not merely an academic discussion. Due to their mistaken economic beliefs, the Federal Reserve has quadrupled the money supply while bringing interest rates to historic lows. The results will inevitably arise: significant price inflation, volatile financial markets, and severe economic downturns. In many respects, Sir Francis Bacon’s aphorism that “knowledge is power” is true. Unfortunately, in the economic realm, the Austrian economist F.A. Hayek was closer to the truth: those in power possess the pretense of knowledge.

How low does this go before there’s a currency crisis?

How’s this for irony -

In our modern monetary system, the term ‘fiat currency’ refers to this absurd notion of paper currency that is conjured out of thin air by central bankers and backed by nothing but hollow promises.

‘Fiat’ is a subjunctive conjugation of the Latin verb ‘fi?’; literally translated, it means “let it be” as in “Let there be light.”

Or in this case… ‘let there be paper money,’ which pretty much crystalized the absurdity of our monetary system.

Former Fed Chairman Ben Bernanke summed this up nicely in a 60 Minutes interview he gave a few years ago in which he said, “We can raise interest rates in 15 minutes. . .”

And he was right. Central bankers can change interest rates whenever they want.

If you think about it, interest rates are nothing more than the ‘price’ of money. It’s the rate that people pay when they ‘demand’ money in the form of loans based on the supply of money available.

But this price of money is incredibly influential around the world. Interest rates affect the prices of shares in the stock market. Oil. Agricultural commodities. Real estate. Automobiles.

Almost everything we touch is affected by interest rates.

So in setting the price of money, we have given central bankers the power to effectively set the price of… everything.

Make no mistake, this is a form of price controls. And there’s not a doubt in my mind that one day (probably soon), future historians are going to look back and wonder how so many people could be bamboozled.

We have somehow been conned into believing that the path to prosperity is for the grand wizards of the financial system to conjure paper currency out of thin air.

Yet this notion of ‘money backed by nothing’ is an absurd fantasy that has failed every single time it has ever been tried before in history.

I bring this up because I have shared a chart with you that was presented yesterday to a savvy group of investors.

Bear in mind first that a central bank, like any bank or business, has both assets and liabilities.

Central bank assets are things like gold and government bonds (e.g. US government Treasuries).

Central bank liabilities are the ‘notes’ that they issue. And if you’re wondering what a central bank ‘note’ is, just look in your wallet.

If you’re in the US, those aren’t dollars. The dollar was defined by the Coinage Act of 1792 as 416 grains of standard silver.

Rather, you’ll see the paper in your pocket says “Federal Reserve Note”– a liability of the US central bank.

The difference between assets and liabilities is called equity, or the bank’s capital. And well-capitalized banks maintain substantial capital as a percentage of their assets.

You could think about this as a margin of safety. The less ‘capital cushion’ a bank has as a percentage of its assets, the less it will be able to withstand shocks to the system.

I tracked this data for the US Federal Reserve. And as the chart shows, there has been an astounding decline in the Fed’s ‘margin of safety’ over the last few years.

The lower this line goes, the more the Fed gets pushed into insolvency.

Note that the trend levels out in early 2012, only to start another steep decline a few months later just as they told us the economy had ‘recovered’. This is apparently what recovery looks like.

The question I ask is: how low does this go before there’s a currency crisis?

Only real austerity can solve the economic woes of our Island.

Real austerity for individuals means living a highly restricted lifestyle. The best example is the monk who lives on a subsistence-level diet, wears simple clothing, possesses a few basic pieces of furniture, and uses only necessary utensils. His days consist of long hours of work and prayer with no leisure activities and he may not even enjoy indoor heating or plumbing.

Austerity applied to whole countries, is not necessarily so harsh or ascetic. It simply means that the government has to live within its means.

Real austerity involves cutting government budgets by reducing salaries, employee benefits, and retirement benefits. It also involves selling government assets and even repudiating government debt. Instead of increasing taxes, the Austrian approach advocates decreasing taxes.

President Barack Obama has recently released his budget in which he calls for an “end of austerity.” This is an amazing statement from a president whose government has spent the highest percentage of GDP in history and added more to the national debt than all past presidents combined. What must he mean by austerity?

There are demonstrations around the world over austerity on an almost daily basis. It is condemned as an evil poison for tough economic times while others tout it as the elixir for economic depressions.

The president’s rejection of austerity represents the Keynesian view which completely rejects austerity in favor of the “borrow and spend” — increase aggregate demand — approach to recession. What he really is rejecting is the infinitesimal cutbacks in the rate of spending increases and the political roadblocks to new spending programs.

Compared to 2005 budgets are 75 percent higher. This leap in spending was financed with a doubling of taxation and a raid on the sovereign fund of the Public of Jersey, the 'Rainy Day' fund. No austerity here!

The type of austerity that gets the most worldwide press attention on a daily basis is that promoted by economists at the International Monetary Fund. This “austerian” approach involves cutbacks in government services and tax increases on the beleaguered public in order to, at all costs, repay the government’s corrupt creditors. This pro-bankster approach is what generates a massive amount of media attention and sometimes violent demonstrations.

Austrian School economists reject both the Keynesian stimulus approach and the IMF-style high-tax, pro-bankster approach as counterproductive. Although “Austrians” are often lumped in with “Austerians,” Austrian School economists support real austerity.

Despite all the hoopla in countries like Greece, there is no real austerity except in the countries of Eastern Europe. For example, Latvia is Europe’s most austere country and also one of the fastest growing economies. Estonia implemented an austerity policy that depended largely on cuts in government salaries. In contrast there simply is no significant austerity in most of Western Europe or the U.S. As Professor Philipp Bagus explains, “the problem of Europe (and the United States) is not too much but too little austerity — or its complete absence.”

If government were to adopt a thoroughgoing “Libertarian Monk” lifestyle, then the national government would be cut back to only provision of Courts. This would involve certain short-run hardships, although much greater long-run prosperity.

In contrast, the typical austerity policy is not severe. Government employees would be given cuts in wages, benefits, and retirement benefits necessary to balance the budget. The biggest cuts would fall on politicians, appointees, and senior bureaucrats. Given that such cutbacks occur when most everyone is facing cutbacks and hardships and given that government employees are typically very well compensated, it is not unreasonable to expect them to bear most of the burden of an austerity policy.

One particularly promising area for cutbacks is government regulation. Regulation is a burden on taxpayers, discourages entrepreneurship, and makes us less safe. One recent empirical study found that regulation was extremely costly and that “eliminating the job of a single regulator grows the American economy by $6.2 million and nearly 100 private sector jobs annually.”

Real austerity actually works best with tax cuts. To help austerity create growth it needs to be understood that certain taxes are highly discouraging to production. Tax cuts on investment and capital in contrast stimulate economic activity and production.

IMF-inspired tax increases make no sense. In hard times, government policies should be guided by the idea of increasing production, not of making production more burdensome via higher taxes. In much the same way, our ascetic monk does not force his duties and burdens on ordinary citizens.

The States of Jersey perennially introduce higher taxes. Some have even suggested that “austerity” should involve extending existing taxes onto charities and nonprofits. Others have suggested taking away the tax-exempted status of charities and non-profits, which is nothing but a backdoor tax increase. These are some of the dumbest suggestions, especially in economic crises and are not real austerity.

Austerity does not mean, for example, budget cuts that would eliminate garbage collection or shutting down the fire department while leaving the departments which serve only the bureaucracy untouched. This is just a form of extortion that does not solve the problem. It only reveals the true nature and intent of those who work in government.

The Keynesian stimulus approach does not work. The IMF-inspired austerian approach also does not work. Only real austerity works. This means cutting government employee incomes, benefits, and retirement benefits. This alone would encourage them to run a tighter ship in the future. Eliminating regulators and regulations, cutting taxes, and selling government assets would all aid in the recovery process.

The States of Jersey should get busy doing what is best for the economy and the public instead of enriching themselves and those who feed at the public trough.

Golden Jackass: Ukraine will be the US Dollar's Waterloo

The desperation of the Anglo-American leadership, guided by the steady corrupt banker hands, has never

been more acutely high, nor obvious in full view. The entire Ukraine situation is a travesty. It includes Langley agents killing police and street demonstrators from rooftops, the confirmation coming from the Estonian Embassy (translation of scripts). It includes thefts of official Ukrainian Govt funds, again sent to the Swiss hill sanctuary. It includes sanctions delivered by a US Paper Tiger, sure to cause horrific backlash. It involves the last gasp attempt to obstruct the Gazprom energy pipelines, which will inevitably corner the European market in monopoly. It involves subterfuge with the NATO card (aka Narcotics And Treachery Outlaws) with missiles placed on the Russian borders. Look for NATO members to find a back door to exit the spurious treaty. It involves playing with nitro-glycerine in the Petro-Dollar room. It involves putting tremendous risk for much more clear isolation of the United States. The more the USGovt pushes, the more the US will be isolated. Remember that Nazis steal from their enemy states, de-fraud from their allied states, and force themselves into an isolated state. In Ukraine, the United States has over-played its weak hand. Already, a secret document was leaked in London that the UKGovt would not support the US-led sanctions against Russia.

History repeats itself from the Kremlin phone calls made during the Syrian conflict just a few months ago, when the UKGovt withdrew its support and left the US isolated, looking very weak. Already, Putin has threatened to dump USTreasury Bonds. Putin aptly calls the Anglo-Americans as Mutants. Imagine the lunacy of trying to cut off the only Russian warm water military naval port in the Crimea. Just as stupid as the Trans Pacific Partnership faux pas, trying to cut off China from its Asian neighbors and partners in trade. The intelligence level of the USGovt has never been more stupid, destructive, and in full view. The lost ground for the United States is obvious and glaring in the Persian Gulf, the Mediterranean Sea, and the Caucasus region.

IMMEDIATE PETRO-DOLLAR RISK

If the Kremlin demands Gold bullion (or even Russian Rubles) for oil payments, then the interventions to subvert the Ruble currency by the London and Wall Street houses will backfire and blow up in the bankster faces. Expect any surplus Rubles would be converted quickly to Gold bullion. If the Chinese demand that they are permitted to pay for oil shipments in Yuan currency, then the entire Petro-Dollar platform will be subjected to sledge hammers and wrecking balls. The new Petro-Yuan defacto standard will have been launched from the Shanghai outpost. If the Saudis curry favor to the Russians and Chinese by accepting non-USDollar payments for oil shipments, then the Petro-Dollar is dead and buried. The rise of the Nat Gas Coop run by Gazprom is in progress, its gas pipelines to strangle the OPEC and its bastard Petro-Dollar child. The entire USDollar foundation with the USTreasury Bond bank reserve structure is at risk is collapsing, as consequence to the desperate adventure and criminal activity conducted in Ukraine.Just like with Syria, a hidden giant energy deposit is concealed under the table. Off the Lebanese and Syrian coast, a massive off-shore energy deposit was recently discovered. The US & UK & Israeli oligarchs wish to take it all. Confusion is their game. In the western plains of Ukraine, a massive gas deposit was recently discovered. The US & European oligarchs wish to take it all. Confusion is their game.

The danger level has never been higher. No resolution to the Global Monetary War can come, which we have been seeking, without a climax. It is hardly just a financial crisis amidst a stubborn economic recovery. The nature of the currencies and their underlying sovereign bond foundation is highly toxic, which requires a strong replacement as solution, using an alternative to the USDollar alongside its reserve ledger item the USTreasury Bond. A return to the Gold Standard is coming, but the birth will have loud pangs and possibly broad damage suffered. The Global Currency Reset is better named the Return to the Gold Standard. The United States and London will not give up their control of the Weimar Printing Press easily, used for elite self-dole of extreme wealth. It has served well as the Elite credit card. They will not go quietly, and assume their place in the backwater without taking the world to the brink. No climax can occur without enormous risk and loss. The Global Paradigm Shift is in full gear, with attendant risk huge here and now. My Jackass firm belief is that the US/UK fascist team face a Waterloo event in Ukraine, the victim to be the Imperial Dollar. This bulletin will not be a comprehensive note, as the situation is too vast. The information in the Hat Trick Letter is used to interweave a story of the impending removal of the USDollar from its corrupt throne.

UNITED STATES TRAPPED AND CORNERED

The Anglo Americans have fallen into a carefully designed trap by the Russians and Chinese in a clever designed sequence. More Sun Tzu tactics have been put into practice, which utilize the momentum from the enemy to be thrust back on them. Planning for final steps must have taken place during high level Putin meetings with Xi from the elite Sochi viewing box. The unfolding of events has been more carefully engineered and orchestrated than what appears. The US/UK team has been caught in a vise for months, as the rejection of the USDollar as global reserve currency is in high gear, the refusal of the USTBond a recognized trend in diversifications. The death process is slow and grueling. Much of the American Hemisphere is surrounded and controlled by Russia & China, whether the canal, the port facilities, the oil supply, the mineral deposits, even Yuan Swap facilities. Africa has largely gone under Chinese control, with Russia playing a hidden role as well.

The Persian Gulf is in transition, with the critical protectorate role shifting to China. The Qatar royals have just ordered a dismissal of USGovt ambassadors from their nation. Note that Qatar is the site of a giant USNaval base. To be sure, the Sochi Olympic Games are over, a successful event. The gloves have thus come off. The risks have reached acute levels. The US leadership seems cavalier to the risks that over half the USGovt debt is in foreign hands, over 30% of it in Russian & Chinese hands. A severe backlash cometh. The most vulnerable player in the room is the most aggressive, arrogant, vile, and obnoxious. The instability of the situation is far beyond acute. The victim will be the USDollar and its sidekick the USTreasury Bond. The USTBonds will be kicked out of the global banking system. The Third World awaits the United States, for its domestic betrayals, its financial failures, its criminal deeds, and its war aggression.

THE RUSSIAN BACKLASH TO BE SUDDEN

Russian President Vladimir Putin will slam the West, and very soon. The initial salvo might be a natural gas cutoff by Gazprom, the Russian giant which has fast moved into the global monopoly position. Eventually, Putin might demand gold payment for the natgas in the captured pipelines, that being the plan according to The Voice. Russia supplies one quarter of Western European gas needs. It will be the opening salvo for Gold Trade Settlement, for which the Iran workarounds to the sanctions provided the critical prototype. Combined with a formal announcement of USTreasury Bond sales in volume by Russia & China, the impact would be tremendous, even devastating. The reverberation will be soon seen as the pending demise of the defacto Petro-Dollar Standard, dictated by crude oil sales in USD terms. It will also be soon seen as the end of the USTBond as the global reserve standard in banking systems. Notice for over two years, the primary buyer of USGovt debt (and its refunded rollover) has been the US Federal Reserve via bond monetization, an absolute heresy to central banking. Hyper monetary inflation cannot stand as fixed policy. The world has responded by constructing an alternative to trade settlement. The forum has been the BRICS conferences and the G-20 Meetings of finance ministers. The US & UK will gradually be excluded from both forums, a process well along. Even traditional allies like Japan are buying gold in high volume, with suppressed lowball data so far. This is game over for the USDollar, the direct victim of Ukraine backlash. The war against Russia has been veiled, but the Jackass has exposed it.

VEILED ATTACKS AGAINST RUSSIAN GAZPROM

First was the attack against Russian Gazprom in Cyprus. It was a hidden attack made to look like a bank confiscation event. Notice no bank account confiscations outside the small but important island nation. The entire Russian banking clearance system had been done through Cyprus. Also, Russia was making significant transactions to purchase Gold bullion using Cyprus as clearing house for the purchases. Second was the attack against Russian Gazprom in Syria, another complicated event. The US had used the Libyan Embassy as a weapons running facility (major diplomatic violation), after which the US lost Egypt as a transfer station on the weapons running. The false flag attack in Syria was made to look like a chemical weapons event. However, the Saudis were the guilty party. The motive by the US was to block the advance of Russian Gazprom pipelines, which are to connect to the vast Iran supply centers. Iran has far more oil & gas than Iraq. In fact, Iran is the linchpin nation, which will throw its support toward Russia. Iran will push the Nat Gas Coop certain to eclipse Saudi Arabia and the loud gaggle of OPEC members. With the Russian Gazprom, together Iran and the Nat Gas Coop will usher in the Petro-Yuan Standard and bury the Petro-Dollar, the price set by Russia, the contracts set in Shanghai. Thus the Saudis will be expendable, and their Gold in London to be totally stolen.

Move to the present. Third was the attack against Russia Gazprom in Ukraine, done by the CIA and its partner security agents from the small ally nation on the SouthEast Med corner. The old game of destabilization, popular uprising, bank thefts, and now data files stolen has been put into action. The theft of significant funds in Ukraine has only started, funds gone to Swiss banks. The full betrayal will be seen soon. The US & UK have a lunatic plan to corral the Ukraine pipelines and possibly the vast farmlands of Ukraine. The wrong-footed plan will backfire, when Putin cuts off the natgas supply to Europe, when Putin demands a new type of energy supply payment structure, and when Putin engineers certain other steps. They might execute a Nat Gas Coop double in price, much like the OPEC event in 1973. Witness the upcoming Birth of the Eurasian Trade Zone, the birth pangs heard in Ukraine. The United States and Great Britain will not be included. The Eurasian Trade Zone will span 14 time zones and will settle in gold.

IRAN WORKAROUND AS KEY PROTOTYPE SOLUTION

The Anglo Americans have disrupted a key nation with longstanding historical and religious ties to Russia. The land of Ukraine also contains Russia's only warm water naval port in the Crimea, the site of a recent suspicious earthquake. The response will be swift and firm. The Eastern nations (led by China & Russia) have been making detailed preparations in the last couple years to launch the alternative trade system founded in Gold Settlement. Its launch lacks a potential open door trigger, possibly offered by the Ukraine situation. The Gold Standard could return in a baptism by fire. The open door trigger appears to be the Western interventions into Ukraine, since the Western banking structures will not be permitted to collapse, the ugly reality. The abuse of the central bank monetary expansion and fraudulent bond redemption has gone totally out of control, forcing an endless cycle of alternative preparations and motivated reactions, including the Iran workaround with Turkey as intermediary in gold provision. Other attacks have taken place in the last few months against the Russian Ruble by Wall Street firms. The reaction will possibly be the launch of what could eventually be understood to be a gold-backed Ruble currency, combined with natgas cutoffs to Europe and USTBond dumps. At first it could be perceived as the oil-backed Ruble, but its quick hidden conversion to Gold bullion could be revealed later on. The USDollar will be discarded as obsolete, even toxic. The USDollar debt basis might be widely accepted to be the cause of the global financial crisis, and the USFed Quantitative Easing be widely understood to be the cause of the global financial collapse.

EUROPE AS KEY REGION TO TIP EASTWARD

Events inside Western Europe could unfold rapidly. Behind the scenes, much is happening. The important German-French Axis is breaking down, weakened by each passing month and bailout exercise. The motive for much of the German support of bailouts and rescue plans, as faulty as they have been, is the oversized German ownership of both French Govt debt and big French banks. They will fail, both the French sovereign debt and the big French banks. Germany must undergo a split, with a restructure from the devastating damage due to Southern European sovereign debt and related big bank losses. At the same time, Germany is on the verge of turning East to Russia. Already Russia is a large energy and mineral supplier to Germany, the heavy railway facilities in place. The core of Nordic Europe is firm. Austria and Finland are aligned with the pragmatic forces in Germany and the Netherlands. Italy is being transformed, but Spain might be lost to chaos. Turkey is also undergoing change during chaotic reform. The entire NATO Alliance has never been weaker. The military action in Ukraine is framed as a supposed NATO exercise to honor a treaty. Watch the loose end like Turkey fall off the NATO wagon, while Finland falls off the Euro currency wagon. The Jackass is eager to see the Snowden NSA files reveal key data on the illicit usage of NATO bases for narcotics distribution, the origin being Afghanistan. What a bombshell it would be if Turkey announced that their government would no longer permit heroin shipments from USMilitary aircraft on their Incirlik Airbase.

A key player in the mix is Israel. They have a Tamar floating platform, whose natgas has been pledged under contract to Russian Gazprom. The tiny nation is possibly changing its alliances out of pragmatism, seeing its drained weakened host that has duly served its purpose. The next big step is for Western Ukraine to suffer the drain of remaining resources (financial and agricultural) to the West, using all the diplomatic tools the Euro Elite can muster. The people in the East will realize that they have been betrayed once more by the Western powers. This is the critical final step. Several swing nations will consequently align with Germany, if only to make being integrated by Russia less painful. During all the transitions, China will take care of Asia in this game. The remaining overriding question is whether the US & Britain will go quietly in the night of faded empires, or else to wreck the world with nukes and viruses. The main exports out of the United States and its royal handlers have been fraudulent bonds, military hardware, genetically modified food, fast food with diabetes, pharmaceuticals, surveillance software, computer viruses, and jamming software technology. Such is the nature of the fascist transformation.

RUSSIA CANNOT BE ISOLATED

The West is in for a gigantic surprise in the sequence of events to unfold. They have placed criminal oligarchs into top government positions in Ukraine. Doing so might suit the West but not the Ukrainian people. The political brain trust in Berlin shows extremely errant strategy, still kowtowing to the USGovt and London Elite in an incomprehensible manner. The West cannot isolate Russia, which is the latest absurd bone-headed strategy. They need Russia in vital ways that will become apparent when the West faces energy supply cutoff or forced Gold payments during an open global USDollar rejection. The US will quickly feel the lost Petro-Dollar gear mechanisms. China has already aligned itself beside Russia, which makes isolation impossible. Consider the Russian commodity supply and Chinese industrial power, the new axis to the Eurasian Trade Zone.

The West cannot continue to bully Russia & China. Poking a stick in the bear's face will not work for long. Disrespecting the Chinese creditor is deep folly. The risk that coincides is for the two Asian superpowers to threaten or actually execute a dumping initiative of USTreasury Bonds, and force the United States to use its last card in a grotesque display of hugely amplified monetary expansion. The US would collapse by falling on its own sword, the event occurring in the Weimar chamber. A super high volume bond monetization machine to cover globally dumped USTBonds is a strong likelihood as climax event, with a broken derivative mechanism that is revealed during its fracture. The London banker murders (another Jackass correct forecast, made in mid-2011) indicate a motive to keep covered up the extreme $100 billion JPMorgan derivative losses at the hands of the London Whale Bruno Iksil, first sighted in May 2012. The accelerated hyper monetary inflation in response to Russian & Chinese joint retaliation would finally kill the USDollar. The echo event, born from failure, would be for the USGovt to launch the new split Scheiss Dollar. Then the USGovt could have its domestic currency finally, and then wreck it with an assured painful sequence of devaluations. The fundamentals for the US domestic only currency are truly horrible, typical of a Third World nation. Ukraine is about the last gasp of the USDollar. It has no viable defense.

UKRAINE AS WATERLOO FOR THE USDOLLAR

Ukraine is the Waterloo event for Team Obama and the Wall Street handlers, the true controllers of the White House puppet. Ukraine will lead to wreckage to the USDollar and its USTBond partner in crime. Witness the death of the USDollar and the Birth of both the Gold Trade Standard, on the new Eurasian Trade Zone landscape. Neither Russia nor China will cooperate on the IMF super sovereign reformed currency basket at this point, not during extreme hostility and conflict. Hope and pray for cooler heads to prevail, since already many serious military attacks have occurred with advanced weapons off the Syrian coast. The Western Press prefers to frame the Ukraine situation as one more curious Orange Revolution event staged in Eastern Europe, akin to the other deceptive Arab Spring events. The old Soviet Union was trapped years ago, forced to use hyper monetary inflation in defense, as the nation imploded financially. The United States is now trapped in an ironic parallel manner, and will be exposed for its heretic inflationary response that ramps up to obscene volumes, followed by financial implosion. In fact, the events from here onward are the final hurrah for the USDollar regime and the criminal cabal.

Now has never been a better time to own a big stack of gold & silver coins & bars, stored in a secure place outside the United States, outside England, outside Switzerland, even outside Canada. The people must defend against a climax of systemic failure, led by arrogance, stupidity, desperation, and delusion, even armed aggression. It remains to be seen whether the Kremlin has some secret allies who might emerge in time, from other worlds. But that is an entire other story to be told someday maybe. We earthlings will all find out soon enough. Times are changing fast, and better to be alert than to get hurt. The Global Currency Reset lies directly ahead, complete with its doubled Gold price and doubled Silver price. The Russians & Chinese are motivated to respond to a military prod, poke, and nudge by delivering a financial response. The rejection of the USDollar is near. The rapid diversification away from the USTreasury Bond is near. The arrival of the new Global Gold Standard is imminent.