Enclosed is Jim Willie's December Hat Trick Newsletter, where he discusses the geopolitics around the timing of the Dubai default, the present dollar rally, the impending collapse of the European Union and more! In his slightly provocative language he puts across some very interesting points.
Jim Willie on the Full Circle of Government Debt Default
The continuation of the bank dominoes took 14 months, but it occurred. The initial destructive impact craters were carved in the United States and England. To be sure, major damage was done to assets in Spain and Greece and other smaller nations in the last year, but their banks had remained insulated. The discredit and death of the central bank franchise system showed first clear evidence in September 2008 on Wall Street. The unique mysterious aspect of banking systems is how they cannot be rebuilt once they turn insolvent. They rot in place, a process accelerated by rotten ethical values, euphemistically called moral hazard. To be sure, much so-called money flows through the dead rotten parts, but nothing becomes resuscitated except balance sheets. And besides, those balance sheets only look better due to accounting rules changes that deviate from mark to market (reality). The distortions magnify and turn cancerous. See the outsized mortgage bonds with no value at all. See the foreclosed homes withheld from the market for sale in bloated bank inventory. See the big bank balance sheets with large entries of idle money sitting in the US Federal Reserve.
INITIAL BANG
Focus on the bank impact craters, not the assets within those bank portfolios tied to bonds and properties. The US housing market turned down, and the mortgage finance bubble burst. The primary victims were Lehman Brothers, Fannie Mae, and AIG, which all died. Fannie and AIG remain in the Intensive Care located south of the Black Hole down yonder under the USGovt tent. To say they have not died is an exercise of pure denial, since they continue to generate grandiose losses, as most rotting dead bodies do. The process is called advanced cadaver decomposition, accelerated by the wondrous financial engineering acid reflux. The tales of destruction in dead banks from the initial bang extended to the AngloSphere as Northern Rock, Royal Bank of Scotland, and HBOS effectively died. It remains to be seen if the venerable Lloyds is an empty shell prone and a cave-in also. Nevermind the details of the many death spirals. Focus on the dominoes and their sequential steps in magnificent wreckage. Marvel at the total lack of recognition by the official spokesmen for financial reality at the USDept Treasury, Wall Street analysts, London analysts, and European analysts. They never comment on sovereign debt insurance or default. Both are covered in the December Hat Trick Letter.
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