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QE Failure & Folly Of Paper Mache

October 23, 2014

The Quantitative Easing initiatives have been declared as stimulus and successful in sustaining the US financial system. While having been able to continue the debt floats, the many market props, providing coverage for USGovt debt securities and mortgage backed securities which nobody wants, the initiative is hardly stimulus. The hyper monetary inflation does what we always learned it did, as in from school for 50 years, dole out its powerful corrosive effect. The inflation lifts the cost structure, leads to elimination of profit margins, and forces businesses to shut down, thus taking equipment out of service. The Jackass prefers to call the QE effect as killing capital, forcing retired capital, putting equipment on mothballs, often liquidated. Neither the USFed nor the Wall Street partners ever refer to the capital destruction effect, because it contradicts their stimulus argument and false message. Theirs is pure propaganda in keeping with the urgent directive to save the banks that are too big to fail. These are the financial crime centers of America.

Many are the interventions taken. Let us peruse the different types, while finishing with the Gold market. The paper mache solutions can continue in a seemingly endless manner, but not in the Gold market. The intervention and suppression in the Gold market is finite. It requires Gold bullion, the physical ingot bars, in order to execute the perpetuated interference and alteration to this financial niche market. The undermine is finite, and it is coming to an end. As the major conflict between East and West is played out between Russia and the United States, bear in mind an important contrast. The Russians have the vast network of natural gas pipelines, which are being fought over in Ukraine. The pipelines supply energy to the many economies, both industry and households. The United States has a vast network of toxic flow in contaminated money, evident in the USTreasury Bond market, the FOREX currency market, and the banking systems. The pipeline for tainted funds contains channels, windows, tubes, side entries, plumbing, and levers just like a giant chemical plant. The trouble is that the US network of liquidity is toxic and leads to destroyed capital and economic ruin. The US will not win this battle. It will earn isolation even from its allies. The US is to become a pariah nation.


Many have been the bank failures in recent years during the so-called Global Financial Crisis, which the Jackass prefers to call the collapse of Western monetary system and banking system. Hidden was the biggest and most important to date, done in September 2008. The bailout was of Goldman Sachs, but made to look like a Lehman failure and AIG nationalization. Under the USGovt aegis, the venerable GSax was given 100 cents per dollar on derivative payouts, was redeemed in full on mortgage assets, and generally was placed first in line for all window functions. It was the most clever bank bailout in history. The source of the derivative payouts was the usual funny money, where all trails lead to the USFed in its money creation. The good people of the United States talk about the favored 1% Elite, but they really have no idea who the bankers are, what they do, devices they use, controls they exert, or influence they peddle. If only they knew how Goldman and Citibank write Congressional legislation and tap markets for illicit tolls and skims. Their huge penalties and fines for criminal behavior are incorporated into their business models. Crime has a relatively small but growing part in its cost of doing business.

Royal Bank of Scotland was another giant bailout following a failure, or near failure. The UKGovt took a 81% stake in the failed financial institution, not quite buying lock stock and barrel in its many wrecked business segments. The bailout was worth 46 billion British Pounds, completed in 2008 and 2009. It is all gone, all squandered, good (phony) money after bad. The good people of Britain have complained about horrendous treatment by the bank ever since. The RBS bank remains predatory, but protected by the government.

A more recent event highlighted the situation well. The Jackass had in 2012 and 2013 wondered whether a systemic breakdown would occur from a mid-sized bank entering failure, which would force larger associated banks to fail. Then would come a contagion, lost control of certain markets under constant intervention, and release of the Gold market. In the process some London and New York banks would go bust. Hope had been somewhat dashed on this scenario when QE was installed and given additional rounds. The bond purchase initiatives enabled other financial assets to be covered, like mortgage bonds, like bank derivatives, like even bank bonds, even ample cover for quiet stocks purchases. As 2014 arrived, it seemed clear that bank failures could be repaired and fixed by paper money, specially designed patches, specially designed liquidity facilities, specially designed loans with near 0% interest, even using massive swaps. The various governments (especially the USGovt) could help repair and fix the bank failures with fiscal outlay of more debt. More hidden is the application of narco money to prevent high profile failures like with Bank of America.

The recent event which caught the eye was the failure of Banco Espirito Santo in Portugal. Its failure was met by a controversy over sloppy redemption of derivative insurance, due to the many subsidiaries involved and contract fine print. Apart from the reform to derivatives to make clear on their payout, a larger message was made clear. The Euro Central Bank simply opened its window and covered much of the BES debt, preventing a full scale bankruptcy failure, and removing risk from a potential contagion. The event remains unsettled. The pattern of central bank covering the debt is clear. The lesson is that central banks can apply paper patches to the failed banks, and buy more time, then repeat the process on the next failed bank event. No limit to their bank patches seems to be in force. The banker cabal can continue endlessly since their patches are based on paper solutions, fiat paper money spew, and they control the paper output. They are the masters of the House of Paper.


The USTreasury Bond market is a great example of a default in front of our eyes, masked by the installation of a hyper monetary inflation initiative as a lifeline patch, one made institutionally. The Jackass has been firm since 2012 that QE is to be continued permanently, and never halted. It created a fully dependent condition which could never be removed. We saw QE, then QE2, then Operation Twist (swaps of long-term bonds for short-term bills), then QE3, then Taper Talk (basic lies), and now QE to Infinity. The current situation involves far more more lies periodically, and in more settings. The central bank cannot admit the permanence of bond purchases, since it would mean the United States is an endorsed Third World Nation, monetizing its growing debt forever, and with heavy war costs atop the burden. The big hint of stench from debt default behind the walls was the suspension of the USGovt debt limit a year ago. Some wise analysts conclude that a debt limit suspension can only happen if a default has occurred. Others argue that the USCongress can simply rewrite the laws to permit an unlimited credit line. The sale of the JPMorguen headquarters in South Manhattan seems to put more weight on the default premise. The endless wars seem to lend credence to the desperation by the banker cabal. There might be a new war in a couple months, the chief US export besides toxic bonds, military weapons, and diabetes.

The USTreasury Bond market would collapse without the QE bond purchases. They are done in unsterilized manner. Despite all his consummate arrogance, Prince Draghi at least conducts sterlized injections, where he removed funds from the financial system concurrently. The USFed simply injects funds without matching funds in removal, thus unsterilized. The USTBond complex is supported by hyper monetary inflation machinery, in the most corrosive, injurious, and heretical manner in existence, pure dispensation of phony untethered money to cover debt, both new debt and rolled over debt. The lifeline patch has been fully integrated into the system. The USGovt continues with its $1 trillion annual debt spew from uncontrollable deficits. No oversight takes place on the USFed actions, which are replete with lies on the deficit volume. Simple end of fiscal year subtraction displays another annual $1.1 trillion deficit. The The Jackass suspects that $80 to $90 billion in QE volume is applied by the USFed on a monthly basis, just to USTreasurys and official label mortgage bonds (mostly Fannie Mae type). My other suspicion is that QE covers perhaps at least another $100 billion per month in derivatives, which are never mentioned. They are deeply problematic, as indicated by the London Whale incident, which also was told with broad lies. His losses were not from Euro Sovereign Bonds, but rather from USTBond volatility, the bane of derivatives. The PIGS bonds all recovered in the quarter in question, to easily expose the JPMorguen lies, except to the highly paid bank analysts who kiss the ring on bent knee.

The USTreasury Bond default might have coincided with the JPM HQ seizure, and perhaps with some measure of Chinese purchase of a stake in the Federal Reserve itself. The Chinese are busily working behind the scenes. They might have given orders to suspend the debt limit, in order to end some unwanted controversy and attention. Lull the masses to sleep, and sack control of the key financial posts. They have been active in converting their toxic USD debt paper to commercial properties and farmlands, possibly also to mining properties and port facilities. The Jackass suspects the Chinese do not hold $1.3 trillion in USTBonds in their possession. My suspicion is they might not have $1.0 trillion, which still would be a lot. They have been making investments around the world, buying hard assets and dumping their USD debt paper. They have been especially busy in African acquisitions and partnerships.

The USTreasury Bond complex has been attached to the USFed QE bond buying initiative by means of the inflation machinery, as a wide channel has been attached and integrated. The debts do not matter anymore, as all covered by monetized debt, a horrendous new chapter fully blessed by the bankers in charge of the USGovt finance ministry. The bond market is therefore corrupted in a thorough manner in an institutionalized cancer display. The reinforcement to the bond market comes from the Interest Rate Swap machinery, a sort of flying buttress to support the 250-story tower which must contend with disturbance from the four winds. The policy piece that few analysts seem to comprehend (or chose to mention even though well aware) is the urgent need for ZIRP Forever, in two critical respects. The system requires the 0% rate to sustain the bond market. The 0% free money is needed as feeder to the Interest Rate Swaps, which process the phony money flow of funds in a couple steps to produce artificial long-term USTreasury Bond demand. Poof, out of nowhere, huge USTreasury demand when no buyers exist. The key need is for free money to feed the IRSwap machinery, new fat bond demand at no cost. The second is the Wall Street bond carry trade. They borrow short and invest long. They use the 0% for borrowed funds, invest in long-term USTreasurys to gather in the rate spread. They usually put on leverage by means of bond futures contracts.

The USFed will not raise rates and crush the big banks, since they are syndicate partners. Doing so would cause a reversal of profits, and cause some momentum for bond sales which could take the long-term yields past 3% surely, and even to 4% suddenly. The USFed will not raise rates and disconnect the lifeline to the USTreasurys from the interest rate derivative machinery. The US relies upon financial engineering, and it will die from financial engineering. The US has become addicted to easy money, and has in place a lethal dependence upon derivatives and carry trade. Greenspan was dead wrong, and he knows it.

The pattern of central bank covering the USGovt debt securities (and quasi-USGovt debt like Fannie Mae bonds) is clear. The central bank has created an elaborate machinery to attach to the bond market in derivatives, with allied support coming from Wall Street carry trade. The machinery and devices are fully integrated. The lesson is that central banks can apply sophisticated paper inputs of the financial engineering variety to the failed USGovt sovereign debt market, and buy more time, and perpetuate the process to cover every new year of debt and every new rollover of debt. The QE is permanent, thus given the name QE to Infinity, just like the USGovt debt to infinity. The ZIRP is forever, the feeder input. The system will go haywire when foreign nations dump USTreasurys in heavy volume, after the USDollar is used far less in trade payments. The USFed volume of QE usage will go ballistic. They can cover bonds, but they cannot force foreign suppliers to accept USTBond toxic paper in exchange for finished products and raw goods including crude oil. The banker cabal can continue endlessly since their patches are based on paper solutions, fiat paper money spew, and they control the paper output. But even here, they will hit the wall, and be forced by foreign suppliers to issue a new Scheiss Dollar. It will be devaluated far more than anticipated. Some nations might be intimidated to continue accepting USD in trade, after the murder of French energy CEO Christophe de Margerie. He spoke out against the practice of USD usage in oil sales. Murder does have its benefits for the USGovt.


The suppression of the Gold price has been the norm for 20 years, the constant cancer on the body financial, the enabler of unbridled debt and monetary growth. The gold enforcer has been locked up, bottled up, and tied up. The methods are many to control the Gold price, which cannot be all listed, since to be honest, some are extremely hidden and are managed in secrecy. The basic methods are to conduct naked shorting of the gold futures contract, selling paper gold, never delivering it, and perpetuating the process with more naked shorts. The sleepy compromised CFTC does not enforce any laws, certainly not againt contract fraud. Since June 2012, the gold futures contracts have been settled in cash, giving their full bloom of the synthetic name. No lawsuits come, since the players would be banned from the COMEX criminal arena. To be sure, the big banks have a much smaller net short gold position lately. They might have been treated to a whiff of their own slaughter.

The SPDR Gold Trust (aka GLD Fund) is an exchange traded fund. It supplies gold bullion to the COMEX in surreptitious manner, by basically robbing the investors of their base inventory. They produce certificates, short the shares, use all kinds of devices, and walk away with the metal off the ramp. The GLD Fund has been systematically drained for the last five years, its inventory under 800 tons. Great debate stirs over the actual effective zero level being around 700 tons, since gold in motion from the mining firm output is counted in the fund (Jackass suspicion). Worse, the legitimate investors of GLD, even with sufficient number of shares according to the prospectus, are being denied a conversion to gold bars from the GLD shares. They are refused since not syndicate members, simply stated. The conversion of shares is an exclusive Wall Street bank privilege. The source from the fund might be dry.

An important indication of deeper corruption is evident in the Gold market. The once esteemed Scotia Mocatta has sold out. They have for the last year been providing their valuable bullion bank inventory of gold bars to the Wall Street hive. They are being drained effectively. The data is visible from the COMEX inventory movements, in a grand shuffle, often with Scotia the source. It is unclear why a respected august Canadian bank would sell their souls to the devil. Some deal was cut, which will not be entertained. To be sure, Wall Street is running out of deep source channels. They have been using their Langley alliance to steal gold, like in Libya (144 tons) and in Kiev (33 tons) and elsewhere, maybe soon in defenseless Chad. The big untold story is the USGovt thefts of Saudi gold in Swiss banks. The royals are being tossed under the bus, no longer useful, except for photo opps. Despite the extraordinary measures, even with wars and disruptions, Wall Street is running out of deep source channels.

Many are the FOREX derivative devices that keep the Gold price down. The lashing of most every major currencies has been done, but relative to the Gold market. A flow chart of FOREX derivatives tied to gold would indeed make for an interesting picture. It would resemble, with Interest Rate Swap portals and carry trade plumbing, a grand picture of a chemical processing plant. The main centers for control of the Gold price are four. The Basel Switzerland hive with the Bank for Intl Settlements is a major control center, home of the uber-bankers. The London site for the Goldman Sachs gold desk is another major control center, next door to the scandalous Gold Fix. The New York Fed is another major control center, which also specializes in stealing official gold accounts. The JPMorguen Chief Investment Office is another two-sided major control center, with vast tentacles to all important markets. It has offices in New York and London. A hidden office could be in the Rome hive, which might contain more telephone and teletype messages than actual market orders.

The pattern of banker control to the Gold market has a deep vulnerability. They cannot use unlimited paper gold contracts, since some degree of attachment to gold collateral is required. In other words, the gold suppression requires some gold bullion as basis. The reported ratio of paper gold claims to the actual gold supply within the banking system is around 100 to one in ratio. It grows worse (higher) every year. The Great Gold Game cannot be continued in perpetuity, since the paper gold requires an inflow source of actual physical metal gold in the form of gold bullion. The New York hive is running low, if not close to empty. The GLD source is running low, if not close to empty. The London hive is running low, if not close to empty. It has actually been drained of 1000 tons gold per month since March 2012. The other sources are more nebulous and difficult to assess. The Basel hive might not be running low on gold bars, but they might be close to their limit on willingness to provide gold to the system, which redirects it to China. The Rome hive might also be low on willingness to provide gold to the system. Both Basel and Rome might be in the process of negotiating a role in the next chapter after the Global Paradigm Shift is completed.


Deep disturbance comes from a sudden (possibly overnight) doubling of the Gold price, done in Shanghai. They run an honest shop and they seek to establish a fair Gold price. It will be based on equilibrium between Supply & Demand of the physical gold metal. What a unique concept, totally lost to the Western bank centers and the entire Western financial structures. The stubborn Gold metal cannot be printed, nor converted from iron or lead in alchemy. Despite strong relations with Beelzebub and the nether world, the bankers cannot tap the alchemy laboratory formulas and produce gold. The Gold market cannot be fixed by paper gold on a repeated basis, surely not in perpuity. When the Shanghai shock comes, all the Paper Gold structures will fall, all the FOREX derivatives will collapse, all the control rooms will go into panic mode. It would be fun to watch, except the vile bankers will cause more wars and release more designer viruses.

The best way to defend against the ongoing deadly storm is to purchase Gold & Silver bars & coins, and to exit the entire paper money system of stocks, bonds, and big bank certificates. Paper wealth will not survive the storm and its climax well. The storm has entered a final climax phase. Great changes are coming. The highly volatile financial markets, almost all of them, signal a storm with nasty resolution. As the Voice stated briefly but powerfully only three weeks ago, "WE ARE IN THE END GAME FINALLY."  The only protection to bank failures, account confiscations, lost life savings, converted pensions, and economic distress will be Gold & Silver ownership in metal form.



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Jim Willie

Jim Willie

Jim Willie CB, also known as the “Golden Jackass”, is an insightful and forward-thinking writer and analyst of today's events, the economy and markets. In 2004 he launched the popular website that offers his articles of original “out of the box” thinking as well as content from top analysts and authors. He also has a popular and affordable subscription-based newsletter service, The Hat Trick Letter, which you can learn more about here.  

Jim Willie Background

Jim Willie has experience in three fields of statistical practice during 23 industry years after earning a Statistics PhD at Carnegie Mellon University. The career began at Digital Equipment Corp in Metro Boston, where two positions involved quality control procedures used worldwide and marketing research for the computer industry. An engineering spec was authored, and my group worked through a transition with UNIX. The next post was at Staples HQ in Metro Boston, where work focused on forecasting and sales analysis for their retail business amidst tremendous growth.

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