Bill H over the weekend:

http://www.telegraph.co.uk/finance/economics/7259323/US-ban
k-lending-falls-at-fastest-rate-in-history.html

To all; WOW! I took a few days rest and look what happened. The IMF says they will sell another 191 tonnes of Gold which was supposed to be "oh so scary" to the market followed by a quarter point increase in the discount rate by the Fed just in case anyone thought them to be drunken sailors with monetary policy. While this was happening someone apparently sharpened their pencil and put it to Britain's balance sheet and guess what? They are in as bad or worse shape than Greece only on a much grander scale. Another quiet little event was the EU demanding Goldman Sachs turn over their books for the last ten years because they allegedly "helped" Greece hide some of their debt , shame on them!

The week before last the U.S. had what could be termed as a "failed" auction and of course last week when the Dollar "should" have been THE safe haven, Gold rose along with U.S. Treasury rates at the long end. So much for "the best laid plans" huh? With option expiration day coming this Tuesday for Gold, they had better not have any more "backfires" on suppressing the Gold price or we could see some very unintended fireworks!

With all the news that came out this past week, none in my opinion were as important as this headline "US bank lending falls at fastest rate in history". This is what the Fed has been so scared stiff about all along! This is what I wrote about back in 2007 and 2008 as the greatest danger we faced. The problem is summed up in Richard Russell's phrase "Inflate or Die"! If bank lending is falling there can be no inflation of assets. If you own anything that changes hands with the aid of credit, it is deflating, PERIOD! What's even worse is that the "money multiplier" (velocity of money) has hit an ALL TIME LOW of .81! Without going into a long explanation, suffice it to say that money is not moving nor turning over.

But how can this be? The Fed has ballooned their balance sheet and Treasury has borrowed and spent $Trillions to avoid just this scenario. The Fed has even reverted to outright monetizing Treasury debt to pump money into the system, chopper pilot Ben had promised us that this could never happen, but it IS! It IS happening because as a system we reached in 2006 a condition called "debt saturation" which is the point where the ability AND desire to take on more debt, peaks. It is the point in time where adding more debt to the system reaches diminishing returns. It is to put it very bluntly "the oh shit moment" for a credit based system.

So here we are 3 years later, (after every country, every central bank and Treasury has thrown every available kitchen sink at the "deflation monster") but not only is this monster still eating, it is now more hungry than ever! No problem though, now the deflation monster has its sights set on countries so it will not go hungry. We are truly at THE most unique financial time in all of history. Never before was there a period where every government, central bank, and Treasury were so interconnected and dependent on one another. Never before has EVERY currency on the planet been that of fiat. Never before has there been the risk (I believe certainty) of sovereign governments defaulting like popcorn kernels exploding.

Last week as I mentioned someone put a pencil to Britain's finances and it wasn't good news. Now it is only a matter of time before some "unpatriotic mathematical geek" puts a pencil to Uncle Sam's finances in a public manner and GAME OVER will be an understatement! Not that we will find out anything that we don't already know, but crowd psychology is a very fickle animal and one that can turn on a dime (not pre 1964) and can take on a life of its own. As I have said many times before, the Treasury market (rigged, fixed, manipulated or not) will be the arena that will "confirm" what some seemingly harmless geek has to say regarding the (in)solvency of the United States! My guess is that it will only take a day or two of 10 year Treasuries at 4%+ or 30 years at 5%+ to do the trick!

Forget about Dubai, the PIIGS, Britain or Japan or anywhere else, the US has cooked this witches brew (not to mention the books) for so long that WE are the problem. WE started it by defaulting on our Gold obligations back in 1932 and again in 1971. WE showed the world how "wonderful" debt and leverage were. WE invented Over The Counter Derivatives and other exotic and worthless financial products. WE suppressed the Gold price to portray a strong Dollar. WE have manipulated every market known to man to obscure realities.

And what do we WE THE PEOPLE get? Reality! Current mortgage foreclosures and arrears at a record, 20% real unemployment, broken 401k's and unfunded pensions (can you say Social Security?), States on the verge of bankruptcy, a bankrupt Treasury by any possible measure, a currency that has no value, lies, spin, and of course fraud inside outside and all around! It is very unfortunate that "reality" has to kick in because to put it bluntly REALITY SUCKS! Whether the Dollar gets an upside spike on the coming deflationary implosion or not is a moot point because "Dollars" will not allow you to make your own "reality" in the coming new monetary system. Only Gold and Silver will do that! Regards, Bill H.