Courtesy of Jim Willies Hat Trick Letter:

◄$$$ LONG-TERM USTREASURYS IN A BREAKOUT, THE NEMESIS TO GOLD. THE BOND MARKET HAS GIVEN UP ON ANY EXIT STRATEGY FROM THE 0% CORNER WHERE THE USFED IS STUCK. CURIOUSLY, NO FEAR OF INFLATION IS EMBEDDED IN THE PREVAILING YIELD. WITHOUT MUCH DOUBT, THE DOLLAR SWAP FACILITY DESIGNED TO AID EUROPEAN BANKS INDIRECTLY RESCUED USTREASURYS, AND TO KNOCK GOLD DOWN. THAT MIGHT HAVE BEEN THE REAL INTENTION AND MOTIVE, AS A DIFFERENT PUBLIC BILLBOARD MESSAGE WAS GIVEN. $$$

The lunacy of flocking into USTreasurys is mindboggling. No currency secured by debt (all of them) is safe. The USGovt deficits and accumulated debt are monstrous and growing out of control. Despite this stark fact, money flows into USTBonds, or at least vast stock flows shift to bonds. Three important points must be made about the USTreasury rally. First, it is a strong signal that JPMorgan and the credit derivative managers have a firm grip on the situation, or so it seems. Enormous hidden fires are surely burning hot, with associated losses covered by the Printing Pre$$ and USGovt consent. Second, it is a strong signal that the USEconomy is not in anything remotely resembling a recovery. Elements of the standard credit cycle remain, much to the peril of bond investors who should bear witness to the European sovereign debt situation as an alarm. Third, it is a signal that further grand Quantitative Easing programs will be enacted in sequence. No fear of price inflation appears engrained within either the investment community or the policy makers, a serious error. So the stage is set for more monetary inflation, more impaired bond redemptions, and more saturation of the system with tainted money. Analysts call it monetary debasement, with risk to the USDollar. If the USTBond does not give ground, the USDollar will. The Powerz cannot control both.

The USTreasury 10-year yield is back to May 2009 levels, showing no fear of price inflation, demanding no compensatory reward for higher risk. A reversal has occurred in the last few months. The bond market has no conviction that an Exit Strategy will be followed, a correct Hat Trick Letter forecast for a solid year. The USFed and USDept Treasury have no options, painted squarely in a corner, as any move results in a kill. Long-term USTBond yeilds rose to 4% on the expectation that the US Federal Reserve would increase the official US interest rates. The need screams for both an exit from extreme stimulative monetary policy and from the absent reward to savers. Entire pension funds, annuity funds, and simple CD savers have been betrayed for two years, paid paltry payments in interest. In the last couple months, the long-term USTBond yields came flying down off the 4.0% psychology mark, in reaction to the European sovereign debt crisis. The exodus has been directed into USTreasurys by virtue of the Dollar Swap Facility, re-installed by the USFed. A hidden motive was at work clearly. Once more, the propaganda story of a Flight to Safety was trumpeted, an impossible story to swallow given the $1.5 trillion USGovt deficits to be funded. They have been largely funded by the Printing Pre$$, the inflation machinery locked in US control. Follow the money.

The USTreasury Bond competes as safe haven with gold during crises and sudden asset price stormy declines. Another important role has come as an important funding conduit for the credit cycle directing money flows back into the financial system. It used to be the essence of powerful monetary inflation converted to bond principal gains when the USEconomy improved and righted itself. That process of the cycle has been interrupted. In the months of February, March, and April, confidence in the USTreasury market was damaged and had to be restored. Notice the IEF bond index fund of long-term 7-10 year USTreasurys, lifted at a critical juncture. It was at the point of decision, breakdown or rally. So a Western World financial rescue decision was made. But who was rescued? My Jackass contention is that the USTreasurys were rescued, along with European big banks, with the wink understanding that the funds from redeemed EU member nation debt would be recycled into USTreasurys. The Dollar Swap Facility was used to bail out big banks with a heavy inventory of Greek and other PIGS nation sovereign debt. The banks turned around with their impaired bonds redeemed at handsome prices, and placed a great deal of the final funds in USTreasurys. That might have been an actual requirement for participation in the Swap Facility in the first place. So the Bond Vigilantes appeared at the barn door, but were scattered by a flurry of machinery and strong ill winds of monetary barnyard flatullence. A bond rally ensued, aided and abetted by the Dollar Swap Facility. The USFed had motive to aid European banks on its face, but aid USTreasurys in deed, which stood in a danger zone. One must wonder if regular USTBond indirect rescues will be required. Methinks yes!

◄$$$ THE USDOLLAR SWAP FACILITY WAS USED TO SHORT GOLD & SILVER BY CENTRAL BANK PROXIES. A SMALL PORTION OF THE FUNDS DEVOTED TO USTREASURY SUPPORT WERE DIVERTED (PROBABLY BY PLAN) TO SHORT THE GOLD & SILVER MARKET. MONETARY INFLATION THUS AIDS AND ABETS THE SUPPRESSION OF PRECIOUS METALS PRICES, THE NEMESIS OF FIAT MONEY. $$$

Analysts are missing a big big point. To be sure, the EU Bank Bailout program had a primary pump in the USFed Dollar Swap Facility. Big banks and central banks used funds from the redemption of impaired EU member nation sovereign bonds in order to short gold & silver. Nobody mentioned it. Nobody noticed it. It is glaring. The gold community does not have much deep analytic brainpower sadly, in my view. The bailout plan was a bullish signal for gold with huge debasement of money, yet gold corrected in price. The USFed managed to spread gold risk across the globe, with hits to come on the next rise past $1300. They know about the JPMorgan naked shorting and frequent gold pounces, but they overlook the new staggering huge credit line to conduct their criminal exercises. The funds were indirectly supplied by the USFed.

Gold investors need not fear, since the major governments of the world, who operate custodial roles for the major currencies, essentially dig a bigger hole. Each episode of reckless monetary expansion, welfare ridden bank rescue, and futile economic stimulus, all badly designed and poorly executed, actually raises the potential gold price another $1000 in the long run scheme. Wait until yearend when the nonexistent fruit of the initiatives is obvious, when nothing is fixed, no toxic assets are disgorged, when the big banks are still broken, all after blowing a cool $1 trillion. What they have accomplished is a higher gold target, along with greater federal deficits. While no remedy has come, no reforms have come, no liquidation has come, the system deteriorates further, thus generating much greater losses seen in capital destruction, reduced tax receipts, lower income, and thus steady gargantuan federal deficits.