...courtesy Jim Willies Hat Trick Letter

◄$$$ HUGE OPPOSITE FORCES WILL PUSH THE EURO DOWN, AT A TIME WHEN THE USECONOMIC RECESSION BILLBOARDS PREVENT THE USDOLLAR FROM RISING IN RESPONSE AS BENEFICIARY. INSTEAD, GOLD WILL RISE VERSUS BOTH MAJOR CURRENCIES, AS THE MONETARY SYSTEM CONTINUES TO CRUMBLE. THE FOREX MARKET WILL SEEK STABLITY, BUT IT WILL BE QUEER SINCE ALL MAJOR CURRENCIES WILL FALL VERSUS GOLD. $$$

The USDollar DX index is so dominated by the Euro component, that any analysis, forecast, or chart of the clownbuck must cover the Euro. Given its precarious position, the Euro deserves focus. The Euro has completed a short cover rally lasting a few weeks. Great imbalances have been lessened and tensions allayed, but nothing resolved as usual. The rally has permitted a counter-trend rally that defies the deterioration of EU sovereign debt, as their bonds are in pathetic condition. Even the German Economy, given lower borrowing costs as a result of bond arbitrage, cannot save the Euro. The common currency is ready to resume its decline, before it fractures into pieces and gives way to the New Nordic Euro, backed by a gold component. However, given the horrendous condition of the USEconomy, the recognition of a resumed recession, the advent of QE2 with all its monetary excess glory, the USDollar is in no position to gain ground. Instead, some stable lower ground will be attained for the Euro. The range between 125 and 127 seems a comfortable level to park, to look over its shoulder, and to avoid the falling rubble. Look for the USFed and USDept Treasury to use the European resumed bond problems as political cover for advancement of the next powerful round of Quantitative Easing. Some of the new phony money will aid Europe, and thus keep the currencies a little more stable.

◄$$$ QE2 WILL BE MORE CANCEROUS THAN QE1, AS MONEY GROWTH WILL BE AWESOME AND INEFFECTIVE PROGRAMS WILL FLOURISH. SINCE THE OFFICIAL INTEREST RATE CANNOT BE REDUCED, FULL DEPENDENCE UPON MONETARY INFLATION WILL BE THE WEAPON DEPLOYED. QE2 WILL PRODUCE THREE MAJOR EFFECTS, ALL RUINOUS. ALL DEBT IS POTENTIALLY SUBJECT TO COVERAGE BY NEW MONEY. NEXT COMES HYPER-INFLATION, AS CONFIDENCE IN ALL THINGS PAPER EVAPORATES. $$$

The arrival of QE2 will be an extremely loud and highly controversial global signal of growing panic, hopelessly errant monetary policy, hopelessly errant fiscal policy, and the total lack of policy alternatives. Look for timing of announcements for major USDollar monetary growth to coincide with renewed European bond crisis tumult and distress. The USFed cannot reduce the official interest rate. Therefore monetary inflation will be the sole weapon to be deployed in utter desperation. The challenge by banking leaders will be to conceal their desperation and panic. It is not clear to me yet that the bankers recognize the failed system under their feet. Rampant monetization has been in progress for several months. However, the financial maestros can order greater volume in money production if done in the open. While less panic is to come from the greater volume that can be managed in neutralized schemes, a risk is accepted in coming into the open. They risk lost confidence and recognition of broad failure. The present monetary system is breaking in front of our eyes. The franchise central bank system has failed, except for its efficient distribution of Printing Pre$$ operations in multiple channels. That does not mark success, but rather equitable distribution of failure and capital contamination. QE1 did not succeed. So QE2 will surely not succeed either, even with increased volume. We are heading toward USTreasury default, a public professional suicide of the King of Monetary Alchemy, Benjamin Bernanke. His past arrogance, ignorance, and heresy will be matched by shame, ruin, and failure.

The arrival of QE2 will produce three major effects. 1) The reliance upon new money growth to monetize rapidly growing debt in the US financial system will undermine value in all things US$-related. The continued artificial support of the USTreasury will transfer risk to the USDollar. 2) Whatever respect and prestige in the USFed will vanish quickly. The bravado of helicopter drops will seen hollow, amateurish, and invite mockery in the open among respected brain trust. 3) The smartest people in the room will begin to declare that the current global monetary system is irreparably broken, and that past and future response, even if amplified, will be doomed to fail. We are on the doorstep of hyper-inflation. No debt in major Western institutions will be spared from coverage by phony money. The floodgate release is vulnerable to lost confidence in the system, resulting in extreme defensive measures by the wealthy. Even with hyper-inflation, the US-centric systems will implode anyway. They have been imploding since the Lehman Brothers failure, the AIG ruin, and the Fannie Mae nationalization. The systems are all propped up artificially.

◄$$$ DEFLATION TALK IS INTENDED AS STRONG DISTRACTION FROM THE POWERFUL MONETARY INFLATION AT WORK, SOON TO INTENSIFY IN AN INVISIBLE MUSHROOM CLOUD. FALLING ASSET PRICES AND RISING COST STRUCTURE LAYS THE GROUNDWORK FOR A POWERFUL SECOND ROUND OF MONETARY INFLATION, CALLED QE2. $$$

The deflation talk is designed to fool the misled public sheeple ignoramuses into thinking massive mammoth high-tech USDollar monetary inflation, executed by financial engineering, the likes of which history has never laid eyes on, is no big deal. The Gold price acts as barometer for the monetary system destruction. The Gold price will head to $2000 in the next 12 to 18 months while the braindead worry about deflation, a concept they cannot define, and comprehend even less. Gold provides the signal for where the entire set of major currencies is going. That destination is the DUSTBIN of history. But the path must be painted with more detail, and made less harmful with large billboards written of deceptive slogans and messages. Gold is telling a loud message that the USDollar is heading to the dustbin, that the monetary system is slowly being eroded by mammoth debt burdens gone out of control, aggravated by assaults on sovereign debt in the bond market. It is possible that another round of Euro currency decline could easily lift the USDollar quite high, before a collapse of currencies. Those who focus on the USDollar during such the collapse are Mr Magoo lookalikes who miss the entire background of monetary ruin. People must try to expand their viewpoints, since the world is changing, and is no longer US$-centric. Gold has taken a position as a reserve asset, an important toehold of renewed respect. That is a major change in the last year.

Many contemporary analysts fail to realize or acknowledge the absence of sound money. They point to outsized deficits and alarming USFed balance sheets, but miss the illegitimacy of money itself. They comprehend neither money nor income. The growth of money, the monetary aggregate (high falluting term) goes beyond the narrow 'M' metrics. Measurement of monetary creation must include the various guarantees and promises made by the USFed and USGovt and USMilitary. The downward financial spiral assures that those guarantees will be called upon. It must include the more complete adoption of a toxic cesspool that has turned into radioactive swill, namely Fannie Mae & Freddie Mac. We have even more immense inflation that the strict monetarist inflation watchers calculate.