Desperate Measures for Fed


Richard Moore

From: "Dstacey" <>
Subject: ECONOMY: Crisis spreads to Commercial Paper market; Europe still being 
supported;Consumer index tumbles; "Desperate Measures for Fed"

Date: Fri, 24 Aug 2007 06:06:27 -0500


ECB pumps $371B into eurozone market

FRANKFURT, Germany, Aug. 21 The European Central Bank gave eurozone banks more 
than $371 billion in extra funds Tuesday, $62 billion more than they need for 
routine business.

The ECB's move follows other central banks' injections aimed at calming money 

The Bank of Japan injected $7 billion into the market Tuesday after pumping in 
$8.7 billion Monday in the hope of keeping key interest rates from rising amid 
the U.S. credit concerns.

The Reserve Bank of Australia bought $2.9 billion in short-term securities 
Tuesday after making a similar move Monday.

The chief executive of Germany WestLB AG bank, partly owned by the German state 
of North Rhine-Westphalia, said Monday night German banks found it increasingly 
difficult to secure foreign credit, The Wall Street Journal reported.

"We sense a reluctance on the part of foreign partners to extend credit to 
German banks," Chief Executive Alexander Stuhlmann told the Journal.


ABC/Washington Post Consumer Comfort Index tumbles to -20

Tue Aug 21, 2007

NEW YORK, Aug 21 (Reuters) - A confluence of negative factors struck a blow to 
the confidence of American consumers in the latest week, with a weekly survey 
registering its biggest decline ever.

The ABC News/Washington Post Consumer Comfort Index tanked to -20 in the latest 
week from -11 in the previous period. It was the first time the index fell 9 
points in a week since it was launched in 1985.

The measure ranges from -100 to +100 and its 2007 average is -7.

"The decline is broadly based among... 

Desperate Measures for USFed

The US financial system is experiencing a combination of a heart attack 
(fibrillation from absent trade recycled surpluses), a massive hairball 
(subprime debt securities) working through the bank arteries, and a realization 
(like Wiley Coyote in cartoons) that no terra firma lies beneath the economic 
feet as the depths below are vividly apparent. Massive money printing 
constitutes a heart attack, now a crescendo since the Constitutional violation 
on gold backed currency. The mortgage bonds simply cannot work through the 
banking system, with hairballs leading to constipation and unspeakable 
intra-bank distrust. For ten years the USEconomy has relied upon rising stocks 
or rising home properties to sustain an entire economy, from a structural 
foundation of inflating assets. For any central bankers or leading economists 
working as policy maker counselors, this is a purely heretical strategy.

The US financial system is teetering. Its USDollar currency is losing global 
support, with some outright revolts in crucial territories. The chief private 
sector export from the US financial sector has been fraud-ridden asset-backed 
bonds and their toxic credit derivatives. What should anyone expect? For years 
an institutional dishonesty within all things financial in the United States has
been engrained, spreading, and become integrated with high levels of the USGovt.
The Wall Street hucksters exported fraud. The backlash might be more severe than
the soft soap gurus anticipate. Look for an international boycott. The shock 
waves in the US financial markets are preliminary symptoms of bigger events soon
to come. Stability identified is nothing but quiet between tremors.

The layers of denial are being stripped, with big names losing credibility. The 
icon institutions are being irreparably tarnished. Wall Street firms in all 
likelihood has negative book value here and now! My forecast of under-water US 
banking system is slowly coming to realization. The recent nonsensical sell-side
mantra is that the tangible economy with consumers will lead the way, despite 
financial sector shock waves. No way! Last autumn the same goombas told us that 
US corporations would invest in capital expenditures to lead the way. No way! 
This here analyst does not accept a single thing they say. The US financial 
sector has been the tail wagging the dog for numerous years, and it will 
continue to do so. The credit distress (what an under-statement euphemism!) will
lead to interruptions in credit flow and an absolutely certain USEconomic 
recession, even AFTER fraudulent official statistics.

My expectation is for an eventual global boycott of US$-based bonds, gradually 
gathering like a storm, widening eventually to include even the USTreasurys. The
USTBond complex continues to act like a safe haven, but it is the broad fire 
next to the frying pan. In time, the onliest buyers of USTBonds will be the 
corrupted compromised and desperate central bankers, who must sustain the 
system. The biggest red herring story in the banking system these days is not so
much official US Federal Reserve action, as the cratering of money market funds 
supposedly safe as rain and apple pie. The French AXA infection is one of 
several stories to litter the landscape in that regard. The funds bought 
subprime mortgage bonds for the added juice of higher yield, only to find the 
juice has laden with hydro-chloric acid. Or was it more deadly sulfuric acid? 
Imagine a poison being peddled at the store front for banks, where the public 
walks up to their windows. The bank run process is at the doorstep. Savers will 
pull their money from banks if they hear that a 30% haircut is coming, just from
a money market account!!! Depositors should not feel safe with their money in 
banks, especially in a nation which defrauds as a policy in almost every level 
in the hierarchy.


Forget for now the futures market and its indicator of the likelihood of 
upcoming official rate cuts. Turn to a more powerful market, which is more 
important than an indicator. The USFed is behind the curve by about a mile and a
half. The FedFunds rate target is firm at 5.25% but they did cut the discount 
rate last week to best bank customers by 50 basis points. This followed 
emergency Fed Repo actions taken two weeks ago, amounting to around $40 billion 
in mortgage bond repurchases. What was not explained was two things. First, were
only subprime mortgages repo¹ed, or some prime mortgage bonds also? Second, were
only Wall Street offerings of bonds accepted for repo, in a veiled Wall Street 
scummy bailout?

The 2-year Treasury Bill yield is below 4.2%, more than 100 basis points lower 
than the knucklehead desperados at the USFed have as their target. Worse, the 
3-month TBill yield has fallen well below 4.0% and during an intraweek 
situation, fell below the 3.0% mark. If one checks the behavior of the USFed 
over the course of the last twenty years, a discovery will come. They have been 
very obedient to the short-term bond market. The highly liquid, ultra-short-term
3-month Treasury market indicates 150 basis points in USFed rate cuts are 

So far the clown alchemists who lash themselves to the mast and helm have chosen
to paint themselves into a corner. They insist they will cut the USFed official 
interest rate ONLY IF the USEconomy is on the verge of recession. These guys 
will be the last ones to notice. They hit the left guard rail then the right 
guard rail, then the left guard rail again. Apparently, they must hit the guard 
rail and feel the friction, the heat, and the lost limbs before they act. Even 
Treasury Secy Paulson has stated publicly his expectation of a SPILLOVER into 
the USEconomy. The financial sector will lead the way. Interrupted, hindered, 
and uncertain credit flow to the tangible economy dictates an obvious forecast 
of a slowdown of more than minor proportions. When the USFed reluctantly cuts 
rates this autumn, the gold & silver prices will rise and the related mining 
stocks will rise. The crude oil & natural gas prices will see much more 
volatility. They will fall under lower demand forecasts. They will rise with the
faltering USDollar. On an increasing basis, analysts and fund managers are 
realizing that Asia depends upon the US markets less than in recent years. 
China, Russia, Brazil, and India will continue to grow by themselves. Trade 
within Asia is growing markedly. The arrogance of US-based analysis and forecast
will be humbled here too.

The USFed finds itself witnessing the early stages of global boycott, and 
perhaps domestic avoidance. Here is a quote from my friend and colleague Rob 
Kirby, a super sleuth financial investigator of high order. ³The Treasury's $32 
billion four-week bill auction was the largest since at least July 2001. The 
bills were sold at a high discount rate of 4.75 percent. The yields on one-month
bills fell as low as 1.272 percent yesterday, and were trading at about 2.6 
percent prior to the auction. In a sign of weak demand, the government received 
bids for the bills equal to 1.11 times the amount sold, the lowest since at 
least July 2001. I have NEVER, EVER seen a bid to cover ratio this low, 
especially in the T-Bill Market. The fact that demand for 4 WEEK BILLS was this 
weak raises SERIOUS QUESTIONS as to how they are EVER going to be able to issue 
2 year, 5 year, 10 year, or 30 year bonds! The air is thick with scent of future
monetizations.² My impression is that, folks, this is desperation slowly sinking
in. US$-based toxicity is being recognized!!! The last resort will be USFed and 
Dept Treasury money printing and rampant purchase of US$-based securities, not 
just USTreasurys.


The USFed has no acceptable attractive policy choices. They incessantly harp 
about their concern over price inflation. They are victims of the dog they have 
fed, bred , and misled. If truth be known, the USDollar money supply is 
rampaging upward, skyrocketing by an annual growth rate of nearly 14%. So they 
chatter like noisy gongs about inflation when they oversee monstrous monetary 
inflation. They cannot DEFINE inflation, let alone measure it. Their spoken 
concern about price inflation is a disguised dreaded fear and desperation over 
the unleash of higher prices from a declining USDollar. They talk of inflation, 
but focus upon the currency risk. They cannot openly direct policy and discuss 
the US$ currency, by charter. The nearest evidence of imminent outbreak of price
inflation can be found in the Treasury Yield Spreads. What was once inverted for
over a year in 2005 and 2006 has now reverted to the normal upward tilting 
spread. Worse, the spread between the 2-year TBill yield and the 10-year TNote 
yileld is a ripe 50 basis points. The stochastix are not even overbought yet, 
which means a wider spread is coming very soon. The spread between the 
long-dated Treasury and the shortest short-term Treasury is huge! The signals 
are two-fold, screaming of that ugly STAGFLATION, since both recession and price
inflation are the strong messages growing louder with each passing week. This is
the worst of worlds for any central banker, and the bitter fruit of the 
unequaled King of Inflation, who left town, knighted and revered, despite his 
actual role as serial inflation engineer. This is Greenspan¹s nightmare 
delivered to Bernanke¹s office desk.

The huge gap in the Treasury Yield Curve screams of necessary action to be taken
on official interest rates. The trapped US Federal Reserve can wait until late 
September, or take emergency action. The last time a huge gap showed up was in 
January 2001, when the Greenspan Fed did what they were forced to do, cut rates 
radically, quickly, and repeatedly. The USFed is damned if they do take action, 
and damned if they do nothing. If the USFed takes no action on interest rates, 
the staggering monetary inflation will eventually continue to work its way 
through the pipeline and deliver galloping price inflation. If (WHEN) they lower
interest rates, they will set off a global US$ selloff, and trigger the very 
threat they publicly acknowledge, price inflation. Bond market signals are 
orders of magnitude more reliable than USFed spoken words. The prices across the
entire system would rise from a falling USDollar. The Europeans are not finished
hiking interest rates. The bond yield differential which has supported the 
USDollar is soon to do a total vanishing act.


My conclusion has been all along, that the next USFed action will unleash huge 
volatile downdrafts in the US$ exchange rates. If they hike rates, the resulting
USEconomic downturn will be a nightmare, again with dire USDollar consequences 
also. Credit would be restricted, as housing would be pushed downhill at a 
greater pace, only to result in a sequence of emergency rate cuts later on, 
amidst huge embarrassment and grand discredit of the heretical house that has 
become the USFed. The US$ exchange rate would first careen downward from bad 
prospects within the economy, and worse prospects in all investment classes 
except USTreasury Bonds.

If they cut rates, the resulting USDollar selloff would be potentially a major 
shock. The USEconomy desperately needs a rate cut, as does the bond market. The 
imbalance of bond demand and supply is totally out of synch, with the biggest 
piece out of place being the USFed Funds rate. Their cut in the discount rate 
addressed the commercial credit market imbalance. Next comes the action to 
address the bond market imbalance. In fact, the lockup in the bond market is 
soon to become a rather ugly spectacle. The US$ is teetering at the edge of an 
historic edge of a chasm. This alternative is mandatory yet treacherous, and 
likely to set off a chain reaction of dire consequences. GOLD WILL LOVE IT. 
Tragically, gold is soon to benefit from a national disaster. The US financial 
system is broken, yet its guiding maestros remain cocky and boastful. The cancer
of inflation has been joined by a major release of subprime toxin. It is unclear
whether anything can fix this fraud-ridden inflation-infested system. My deep 
seated concern is that a political transformation is just over the horizon, 
since remedy is impossible.


Trade war renders another inflation risk. For two decades, the USEconomy has 
benefited from inflation export to Asia. Also, a benefit has been seen from its 
export to the Persian Gulf. Both Asia and the Gulf are important sites nowadays.
At a time when Asia has stopped incremental purchases of USTBonds, the nitwits 
in the USGovt chambers push for trade sanctions. Talk about stupidity! So the 
avenues of inflation export are likely to be restricted, then curtailed further,
and possibly shut down significantly. Heck, US voters, perhaps dumber than our 
leaders, want to take action against those who robbed their jobs. Well, take 
action against US corporate leaders, who sold out the US worker class altogether
in the biggest betrayal in modern labor history in the United States. The 
moronic economic mindset that has directed policy is close to a total breakdown 
from bad decisions run into an accumulation of dead ends, disasters, and dominos
which cannot be even remotely rectified. My sources tell me now that China has 
hit the $1 trillion mark on US$-based debt security storehouse, they next will 
put the screws to the United States in almost every conceivable way. They want 
to become the world bankers. They want to reduce the USMilitary dominance. They 
want Taiwan in a more formal gesture like with a shepherd hook. They want to 
take what they regard as their rightful place as world leaders. The corrupted US
wonks will continue to play into their hands, with basic profit motive from a 
skein of major initial stock offerings an ongoing motive. The US Defense 
industry and Wall Street bankers have accomplished a mudslide destruction of the
US financial and economic system, one more devastating than any enemy could have
designed with deep insight and careful planning.

The Persian Gulf continues to search for the guts to reject the US$ peg. First 
was Kuwait, shedding the US$ peg. Next has been the United Arab Emirates, 
soliciting wider action by all Gulf Cooperative Council members. The UAE is 
attempting to pull the pin on the hand grenade on the Petro-Dollar. The entire 
group of nations is at its own crossroads. They must decide on security pacts 
with the United States. They must react to the price inflation whirlwinds 
released by keeping the USDollar peg doorway open. Should the clueless USGovt 
leaders declare a trade war on the Persian Gulf also? No, not necessary, since 
the Military Protection Racket is working really well. The Saudis just completed
a multi-billion$ arms deal with the US Defense industry, sure to be expanded in 
time. The US export data should be reinforced in a healthy manner. War would be 
good business if it did not destroy economies, at their end and our end.



From subscribers and readers:

³IMO you are one of the best writers that we have, Jim, and Grrrrrrrreat DOES 
apply. You are just a little short on email etiquette.²

   (Barb Moriarty of 321Gold in Grand Cayman)

³I want to congratulate you and thank you for your quick and frankly stated 
revision on bonds [the 4.0% forecast]. That was my thinking all along, but I 
must say that your writing was and continues to be a most valuable input to my 
thinking in the first place. That type of integrity makes me value your opinion 
all the more and is likely to keep me as a loyal subscriber for years to come.²

   (ScottD in Pennsylvania)

³I believe your wit and disgust at the state of affairs stand untouched.²

   (Charlie P in Virginia)

³I am currently subscribed to over 60 paid newsletters. Your analysis is by far 
the most accurate every time. The most impressive characteristic of your thought
processes is your ability to think in multi-factorial terms. You are one of the 
few remaining intellectuals with such capacity intact.²

   (Gabriel R in Mexico)

Jim Willie CB is a statistical analyst in marketing research and retail 
forecasting.   He holds a PhD in Statistics. His career has stretched over 25 
years. He aspires to thrive in the financial editor world, unencumbered by the 
limitations of economic credentials. Visit his free website to find articles 
from topflight authors at  <> 
. For personal questions about subscriptions, contact him at  


Aug. 22 (Bloomberg) -- H&R Block Inc., the biggest U.S. tax preparer, tapped 
bank credit lines twice in the past week after its usual sources of cash began 
drying up.

The company borrowed $200 million on Aug. 16 because turmoil in the credit 
markets left it unable to sell commercial paper, H&R Block said today in a 
statement. That loan was repaid on Aug. 20, when Kansas City, Missouri-based H&R
Block drew an additional $850 million.

H&R Block's access to cash may remain limited because the commercial paper 
market has shut out mortgage companies and investors aren't buying the subprime 
home loans made by its Option One unit. Hedge fund manager Richard Breeden wants
H&R Block to shut the money-losing unit sooner and put him on the board to help 
right the company....


"Hmmmm . borrowing to repay a loan taken out 4 days earlier. That's always a 
good sign."


Commercial Paper Has Biggest Weekly Drop Since 2000 (Update3)

By Darrell Hassler

Aug. 23 (Bloomberg) -- Outstanding U.S. commercial paper fell 4.2 percent, the 
biggest weekly drop in at least seven years, as investors fled asset-backed debt
and opted for the safety of Treasuries.

Short-term debt maturing in 270 days or less fell $90.2 billion to a seasonally 
adjusted $2.04 trillion in the week ended yesterday, according to the Federal 
Reserve. Commercial paper outstanding has fallen by $181.3 billion in two weeks.

The retreat may indicate that the Fed's decision to lower the discount rate last
week failed to instill enough calm to draw back investors. Commercial paper 
backed by assets led the fall as buyers fled debt linked to subprime mortgages. 
Outstanding paper may slump by a total $300 billion, representing the entire 
amount of such debt backed by home loans, said Tony Crescenzi, chief bond market
strategist at Miller Tabak & Co.

``The commercial paper market, in terms of the asset-backed commercial paper 
market, is basically history,'' Bill Gross, manager of the world's biggest bond 
fund at Newport Beach, California-based Pacific Investment Management Co., said 
in an interview today.

The decline in outstanding commercial paper was driven by a 6.8 percent fall 


Posting archives: 

Escaping the Matrix website:
cyberjournal website:

How We the People can change the world:

Community Democracy Framework:

Moderator: •••@••.•••  (comments welcome)