Home > Predictions > ‘Chaos will reign. A form of darkness will befall the earth.’

‘Chaos will reign. A form of darkness will befall the earth.’

Another good one from Jim Willie (aka the Golden Jackass):


Much of the business sector is frozen. Executives and managers are frozen in inaction from inability to anticipate what comes next. The landscape of regulations and official programs is too rapid, unpredictable, and illogical. We see stupid stuff like Clunker Car Programs. We see disruptive stuff like the Health Care Program. We see unpredictable stuff like the Home Purchase Credit Program. We see uncertainty, like with the home tax credit return. The biggest obstacle to business seems to be the Health Program monstrosity. It forces higher costs upon businesses while officials claim the exact opposite. Nowhere is the confusion greater than the housing and mortgage finance markets. Investors are front running the bond trade, with anticipation of USGovt monetization of more USTreasury Bonds and more USAgency Mortgage Bonds. The prospect of QE2 has brought about a perception that lower mortgage rates could come, and continue to come. The business sector cannot readily hire in this uncertain illogical environment in flux, where leadership is constantly being questioned. The home buyer demand was drawn forward, leaving a late summer and autumn vacuum. See the 27% decline in existing July home sales. The investment community is buying the USGovt guaranteed bonds, ahead of the QE2 launch. Investment in business equipment and capital formation is nearly non-existent. The USEconomy is frozen by erratic policy. In fact, the Gross Domestic Product is negative, once 3% is subtracted from the official downward revised 1.6% growth in 2Q2010. The subtraction is required for entrance into the world of reality, where hedonic and other productivity fudges must be removed.


This is not a lost decade upcoming. The United States has suffered an entire generation of lost industry from its systematic dismantling, forfeit, and abandonment. The migration of industry began with Japan and the Pacific Rim in the 1980 decade. It continued in the 1990 decade, along with the NAFTA experiment with Mexico. Those border factories were removed with the advent of China. It culminated in the 2000 decade, with the death blow from the Chinese industrial expansion, often dubbed the Low Cost Solution. The entire generation, especially since the Chinese climax, replaced US factory income with service sector income, which included the finance sector from mortgage processing, credit derivatives, leveraged structured finance, and other financial engineering vehicles & structures. The emphasis on clean industry and sophisticated economical development was nothing more than a deceptive billboard to conceal the near total devotion to and dependence upon inflation for economic growth, which backfired and killed the system. The financial engineering offered no legitimate advancement to the society, and certainly not to the USEconomy, except the automatic teller machine, an observation made by former USFed Chairman Paul Volcker. His tenure was ended by the way, as a result of vicious rumors of a cancer debilitation, completely false stories spread by proponents of Alan Greenspan, a syndicate priest of high order. The Greenspan Era justified the virtues of risk offloaded in credit securities, hailed the sophistication of the system, and heaped praise upon each other’s priests, right before the system collapsed from a flimsy and fraudulent foundation, leveraged inflation engines, and absent industry.


The secret to a legitimate solution is easy. The big banks must write down their credit portfolios, and accept deep losses. If that results in liquidation, so be it!! Accounting fraud is not a substitute for restructure. Nor is dispatching badly impaired assets to the USFed, whose by all accounts is a Bad Bank Repository. Debate continues on the need to create a bad bank for dead assets, when the USFed is precisely that bank. Toxic assets held by the big banks must be liquidated. The phony propped credit markets must be permitted to fail, and to find proper value via equilibrium processes. Nowhere is equilibrium sought, as everywhere it is avoided. The USGovt should exit and quit the game of stimulus, intervention, and market distortion. The USGovt is delaying the inevitable. The financial markets should seek their bottoms for clearing supply. The bank leaders must be liquidated, removed from power, and face some prosecution. The Too Big To Fail premise must be rejected. The Zombie Big Banks threaten the entire system. If truth be told, they control the leadership of the USGovt itself. Dead entities control the USGovt, lodged in a stranglehold!!


This is remarkably simple economics analysis. Without substantial liquidation of the badly impaired assets held in tremendous volume within the big banks, further credit constipation will be the mainstay fixture. That asset clog includes the vast bank owned properties from home foreclosures. The REO count rises about 50 thousand homes per month, a figure roughly double from the January level. Without major liquidation initiatives, expect continued Zombie Big Banks cluttering space. Without major liquidation initiatives, expect continued demands from the Zombies for large tracts of money. Without major liquidation initiatives, expect continued $trillion fraud schemes with Fannie Mae as nexus. Without major liquidation initiatives, expect escalated growth of the USTreasury Bond bubble. In plain terms, the economic landscape and credit system cannot recover without the plowing under of the Big Banks. However, they control the USGovt, its finance ministry in the USDept Treasury, and the USDollar Printing Pre$$ itself. The big banks will NOT order their own death warrant, and face the financial gallows. To think otherwise, even for the national good, is folly. It is like asking a heavily armed bank thief in the middle of a crowded lobby, holding a few dozen hostages, to shoot himself in the head instead, for the good of the people. The credit engines of the USEconomy will not fire much at all unless the big banks are liquidated, or at least much of their balance sheets is liquidated. That would expose their deep insolvency and potentially lead to their failure. A run on those banks by depositors, and a ruinous sale of their corporate bonds by investors, would ensure the big banks death. They belong in the morgue, for the national good. Capitalism demands their plowing under to unleash hidden potential.

The ball & chain dragging down and keeping down the big banks is the housing market. The downward force of gravity is visible in the falling home prices. The deteriorating USEconomy still pulls down the monetary platform, as the credit portfolios are directly attached to the ball & chain. The USEconomy was given the appearance of growth from the housing bubble between years 2002 and 2006. Its asset bubble formed a foundation for the majority of the USEconomy, and whose accompanying mortgage finance bubble provided the liquidity to the system. In fact, the entire boom & bust served as vivid indisputable evidence that the home is not a tangible asset, but rather a financial asset, an abused asset. The mortgage foreclosure process is the final proof. The true tangible assets are crude oil and precious metals. Other commodities will be sacrificed in wholesale form in order to purchase energy and precious metals. Energy is needed for commercial survival, while gold is needed as bonafide safe haven for money.


The USGovt finds itself managing a mangled menagerie of frozen fixtures, most of which are totally broken. It is the great investor in failure and fraud. Its actions cover up the fraud, from policy taken in full collusion. Should the leaders give orders that result in formal suicide ceremony of the big banks, a US version of harikari? Should the props be removed and force a USTreasury default? A default will occur anyway in my view, since it is only delayed. The USTreasury default will come as a result of trade war isolation, USDollar vicious cycles in USGovt deficit monetization, a massive sudden USDollar devaluation, or the USFed resignation from its Congressional contract amidst $1 trillion losses. Expect all the above in combination, each linked. The USFed already has compiled close to half a $1 trillion loss on its balance sheet.

A grand game of chicken by the USGovt and Wall Street control panel is taking place. All official plans are predicated upon an economic recovery in the United States. A great fan blows fake acidic money into the bankers trough, but the monetary system erodes as its pillars suffer continued gradual deep damage. The new debt, delivered as fresh paper, acts like acid on the capital base of the entire USEconomy. As described in previous articles, the United States possesses the worst economists in the world. They have no concept of capital formation, no concept of what constitutes money, no concept of legitimate income, and no willingness to liquidate the toxic assets that prevent a restructure and recovery. The big hairball in the system is the big banks. The American public cannot survive on a limited credit diet due to big bank hairballs clogging the system.


A growing risk is palpable of migration away from USTBonds. It could come very soon. After the housing & mortgage twin bubbles and consequent bust, the last asset bubble has a little more ways to go. The last asset bubble is the USTreasury Bond, the entire complex. In fact, the bubble extends to the Fannie Mae bonds as well, since under USGovt guarantee. Perhaps a 2.0% long bond yield will be the sentinel signal to abandon and sell, setting up a bond bust. An extreme risk is present for the next important event to frighten the horses that prop USTBonds. What will be the rattlesnake in the sand? Foreign creditor sales in volume? A ramped up trade war? Harsh criticism for improper USDollar printing in monetization schemes, finally in the open? Recognition of a $1 trillion tab in war spending? A river of hyper-inflation is lodged in the USTBond dam, whose walls are nothing more than paper reeds held together by bad verbal glue, uttered by bank leaders who increasingly lack credibility.

Witness the failed central bank franchise system, and USFed Chairman Bernanke without any tools left. Witness the systemic failure of the USEconomy (and Mexico too). All USFed recovery scenarios depend upon a USEconomic recovery, which itself is completely dependent upon a US housing market recovery and a US banking system recovery. No recovery will come, since no Big Bank liquidation will be permitted. Therefore the USFed will walk the pirate plank to a great death of insolvency and ruin, which will spawn a USTreasury default, my forecast made two years ago. It is more certain than ever before. The safe haven is gold & silver. The USTreasury Bond grand dissipation, the long bust process, will catapult the Gold price toward $3000, and suddenly. The gold community will find great amusement in watching the reaction to the naysayers and critics, except the world will change into something hardly recognizable. It will turn into an ugly version of Mad Max, the movie. Shortages and crises will abound. Chaos will reign. A form of darkness will befall the earth.

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