[graffis-l] US/MEX. FAILED SYSTEM,FAILED STATE

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>US/MEX: Failed System & Failed State (worth reading) Mark Graffis

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>1. US/MEX: Failed System & Failed State (worth reading)

>Posted by: " Mark Graffis " mgraffis mgraffis

>Fri Aug 31, 2007 6:23 pm (PST)

>

>http://www.321gold.com/editorials/willie/willie083007.html

>

>US/MEX: Failed System & Failed State

>Jim Willie CB

>Jim Willie CB is the editor of the " Hat Trick Letter "

>Aug 30, 2007

>

>Use the above link to to the paid research reports, which

>include coverage of several smallcap companies positioned to rise during

>the ongoing panicky attempt to sustain an unsustainable system burdened by

>numerous imbalances aggravated by global village forces. An historically

>unprecedented mess has been created by compromised central bankers and

>inept economic advisors, whose interference has irreversibly altered and

>damaged the world financial system. Analysis features Gold, Crude Oil,

>USDollar, Treasury bonds, and inter-market dynamics with the US Economy

>and US Federal Reserve monetary policy.

>

>TRIBUTE TO KURT RICHEBÄCHER. [who died this week] He was a valued

>colleague and an inspiration to my newsletter. Our week together in Cannes

>will forever be etched in my memory.

>

>Amusement is my response when other writers call me or my work 'extremist'

>as Claude Cormier recently has. He is a topnotch analyst out of Quebec,

>whose work is respected and admired. He himself cites extreme events, like

>comparisons between the United States and Argentina, in the decimation of

>the middle class amidst prolific inflation and financial sector foul play.

>Labels are not kind, but my job is to analyze the extreme situation on a

>host of fronts. To be honest, the label is taken here as an extreme

>compliment, since it means my perceptions are squarely on target.

>Additional extreme observations can be detailed, which points to systemic

>breakdown. The US financial system shows signs of failure, the USEconomy

>suffering deeply in association. If one were to list the extreme events

>and factors in the last few years, reaching a climax nowadays, the

>recitation would flow over into several dozen pages.

>

>As an important US holiday approaches (Labor Day), a reflection is in

>order of the extremely dangerous footing we find our nation in, and the

>predicament that a nation of laborers finds itself in. Workers find their

>situation extremely tenuous, especially in light of the corporate sell-out

>of the American worker in favor of Asians, aided by USGovt incentives and

>Wall Street cheers. Our workers became accustomed to the betrayal during

>the 1980 decade with the Pacific Rim powered by the Asian Tigers. Why

>cannot economists see that a decade of Vietnam War inflation, a

>Johnson-Kennedy Guns & Butter agenda, and USDollar benefit from high

>Volcker interest rates (leading to Plaza Accord to bring down the US$),

>resulted in a colossal cost to the US Middle Class and workers??? They

>took more blows with the 1990 NAFTA betrayal, as Mexican assembly plants

>cropped up across the border. The current Chinese and Indian outsource

>movement is yet another betrayal to the American worker. Outsource the

>job, enjoy the lower cost to the corporate profit margin, and send the US

>employees into the street, especially if they are near retirement with

>pensions.

>

>Let us all celebrate Labor Day, marred by a skein of betrayals. What is

>needed is a national program to put Americans to work. Instead, we fight

>an endless winless war abroad, in support of private syndicates who profit

>heavily. How about a national mandate and high priority initiative to

>rebuild the US bridges, access roads to major cities, tunnels, railroads,

>sewer pipes, water pipes, natural gas pipes, crude oil pipes, airports,

>and port facilities? And yes, forbid Halliburton and other connected

>crooks to participate in any and all bidding? FDRoosevelt initiated

>numerous plans. Why not now? High speed trains are common in France,

>Germany, and Japan, soon to China. The US lags badly.

>

>In fact, one can conclude that the US is morphing into a bizarre Third

>World nation with a powerful military and a banking system well equipped

>to abuse the power extended from printing unbacked money marked as the

>world reserve currency. Reflection at holiday time brings front and center

>thoughts of how insistence on placing the Iron Triangle (Pentagon, Defense

>firms, Lobby firms) in the catbird seat has contributed mightily to the

>weakening of the USEconomy, the undermine of the American worker, and slow

>bleed of the US Middle Class. That portion of the federal budget receives

>almost no debate, no accountability, no prosecution for fraud.

>

>WAGES & PENSION DESTRUCTION

>In the last 30 years, the inflation adjusted wage per adult has fallen by

>30% to 35%, inflicting great hardship on the family structure. A household

>needs to enjoin three wage earners, but such is impractical since most

>offspring are reckless spenders, not effective workers, and since Uncle

>Charlie (as in the television show My Three Sons) do not fit the mold

>anymore. It is next to impossible to put one's savings to work without

>engaging in high jinks gambling. Entire pension funds were killed in the

>2000 stock bust. Outside of TIAA-CREF, where academic and many

>institutional pensions are managed, some hefty losses were inflicted. The

>advent of 1% official Treasury yields enticed many pension managers to

>take risks which are biting deeply into future retirement income. This all

>seems wicked and extreme. In fact, the details of the entire national

>financial and economic landscape seem like out of a futuristic science

>fiction novel with little basis in sanity. The incredible part of the

>story seems to be that few smart folks cite the extreme nature of it all.

>The US financial system, the USEconomy, the global economy, the US$-based

>banking system, they are all on the brink. Asset-backed bonds have nuked

>the banking industry. The housing decline puts the USEconomy at grave

>risk. The global economy leaves Asians and Persian Gulf nations owning

>enough US$-based debt so as to jeopardize US sovereignty. Call me an

>extremist. If others do not see the extreme precariousness of the

>situation, they are compromised, unaware, sleepy, or corrupted.

>

>FRAUDULENT STATISTICS AS BASE

>The 2000 tech telecom stock bust provided an earthquake across both the

>financial sector and the general economy. An official recession was

>admitted and acknowledged, late. That means Gross Domestic Product growth

>fell below minus 5%, since the USGovt gimmicks build in exaggeration by

>over 4% at least. That fact alone sounds extreme, especially in view of

>additional distortions, like the Consumer Price Index claimed at 3% when

>it runs closer to 11%. Extreme gimmicks remove rising components. And then

>the unemployment rate is claimed at 4% to 5%, when in reality it is more

>like 9% when those without jobs are counted, using data released by the

>same spin doctors at the Bureau of Labor Statistics. Productivity would be

>negative if not for the same gimmicks on hedonic adjustments which assist

>the GDP. They got caught with bogus statistics last summer, on the

>relationship between productivity and import prices. You cannot import

>productivity! Distortions in the compass readings are skewed to the

>extreme, to such a degree that monetary and economic policy cannot

>remotely be adequate in response to current conditions. The gulf between

>official statistics and reality seem extreme.

>

>UNFIXABLE UPSIDE DOWN ECONOMY

>In the wake of the great 2000 stock bust came another even greater

>extreme. In bizarre yet desperate fashion (hidden), the Greenspan Fed

>encouraged a housing bubble in order to save its own reputation. The

>USEconomy could not afford a recession, with all the inherent debt

>liquidation. So a myth of an Asset Driven Economy was promoted. That seems

>extreme for any central bank. Imagine proclaiming as healthy, valid, and

>with firm foundation an economic dependence on assets (housing & stocks)

>pushed higher by inflation!!! A strong economy would rely upon business

>investment, production, income growth, and sensible spending, not the

>lunatic retail mania that we find the USEconomy dependent upon. Almost 30%

>of all new jobs created since 2002 have been tied to the housing

>construction bubble. Some call it a boom, but in my view just another

>absurd bubble. Imagine instilling a dependence for economic growth on a

>non-producing asset like a house, instead of a manufacturing plant where

>value can be added with intellectual capital and jobs created. That is a

>cockeyed extreme. Imagine the extreme structural imbalance of having 70%

>of the USEconomy derived from consumption, led by retail. Here a graph

>displays the extreme clutter of retail chains within the US landscape.

>This 7-fold greater retail footprint of the US consumption over European

>footprints is absurd. This is a ridiculous extreme.

>

>INDICATORS & PRIORITIES

>Then we saw a stock market reach new nominal highs, set records, as an

>economic boom is heralded. All pure extreme nonsense, since the USDollar

>fell by roughly the same 15% to 20% as the stock market indexes rose.

>Hence, purchasing power of one Dow share or one S & P500 share has been

>preserved. That is a wash, not a boom. One might even ask why the S & P

>stock index is part of the US-based Leading Economic Indicators, when over

>30% of profit from such firms is derived from outside the USEconomy. The

>recent Cisco Systems quarterly report highlighted this effect, strong

>business abroad, weak at home. The US Federal Reserve in the meantime has

>made official statements incessantly referring to their fears of price

>inflation, when what they really mean is the USDollar might fall to such

>low levels that imported price inflation would threaten the entire

>USEconomy. They fear a backlash from exported inflation, soon importing

>it! So the USFed cannot talk about the US$ currency exchange rate

>directly, yet its policy can easily cause a rout on the USDollar with all

>its price inflation consequences. That puts the USFed in an extreme box.

>

>MUSICAL CHAIRS & HOT POTATOES

>The aftermaths of extremely incompetent economic guidance and planning,

>combined with irresponsible heretical banking policy, have led to an

>utterly unfixable housing crisis and mortgage finance debacle. This mess

>has years for dust to clear! The entire non-government bond market has

>fallen into a situation difficult to adequately describe. How about

>comparisons to a human body suffering from seizures from bubbles in its

>arteries (from inflation of assets, then deflation) but also beset by

>constipation from fraudulent asset-backed bonds (like mortgages and

>associated leveraged CDO bond derivatives)? Sounds about right, but again,

>quite an extreme situation. With the threat to money market funds, whether

>insured or not, the entire banking system seems to be at risk of proper

>function. Musical chairs come to mind, which demand players to find a seat

>when the music (credit flow) stops. Hot potato comes to mind, much like

>the Drexel Burnham plight, which demands players not to hold the acidic

>worthless bonds. My claim is that all subprime mortgage bonds are worth

>under 25 cents of par value, and ALL Collateralized Debt Obligations with

>dominant subprime mortgage bonds are totally worthless (as in 100% loss).

>Actually, the CDO bond losses are much greater than 100%, sure to bite

>deeply into the value of other assets of good value, like gold and crude

>oil contracts. To me, the banking situation is on the ropes, an extremely

>dire picture.

>

>WALL STREET JUNK

>With most Wall Street firms facing junk bond status downgrades according

>to Credit Default Swaps on their corporate debt, yet enjoying wonderful

>investment grade debt ratings, we have more extreme corruption in the

>banker brokerage system. Conversations with foreign analysts strongly

>indicate a global perception of institutionalized fraud and dishonesty in

>the US financial sector. In my view it spans almost its entire spectrum.

>No, not all corporations engage in fraud. But every suite in the US

>financial sector house contains prevalent fraud. This is utterly extreme,

>but not surprisingly, as a consequence to the Green Light given to deceit

>and swindle with the USDollar no longer backed by gold. The end of a fiat

>currency game is replete with extremes. Gigantic bailouts are part and

>parcel of the extreme resolutions.

>

>GIANT VEILED BAILOUT

>The size of the mess, from housing and mortgage bond bubbles, is an order

>of magnitude larger than the lunatic LongTerm Capital Mgmt mess in 1999.

>Expect a larger bailout, especially since it is denied vigorously. Worse

>this time though, since confusion will abound. Questions remain

>unanswered. Did the USFed accept mortgage bonds offered only by Wall

>Street firms? Or only major banks? Major banks seem listed as big

>beneficiaries so far. Was the injection of $30 odd billion of funny money,

>otherwise called counterfeit funds in private sectors, a secret Wall

>Street bond bailout disguised poorly? Methinks yes. This seems extreme.

>

>GLOBALIZATION BACKFIRE

>The global economy seems like a rubber band stretched far past its

>specifications for usage. Labor arbitrage sends jobs to Asia. In return

>they own vast tracts of US$-based debt securities. The US workers lose

>their jobs in droves. A giant step backward has taken place on product

>safety and quality. The end game seems to be trade sanctions, scuffles

>over currency manipulation, blame game, market ambushes, and lost

>sovereignty. Globalization sounds good, but in practice it results in

>dislocation, conflict, and chaos, more extremes.

>

>RAMPANT DENIALS OF REALITY

>Denials have been so broadly uttered by banking and economic and financial

>market leaders, that your heads should spin. It becomes easier to make

>sense if you conclude that every denial is wrong, and the louder the

>denial, the more serious the effect. Now Premier Bank in the Kansas City

>area is on the ropes, a Fed Reserve Bank. Like with a drunk, why ask if

>Uncle Jack is a drunk, if his behavior and life does not scream of

>alcoholism? Contagion of subprime mortgages to other debt securities is

>evident. Spillover to the real economy is evident, but not total, yet.

>Borrowing for consumption is impossible anymore. The housing recovery is a

>mirage. Housing sales and prices are nowhere near the bottom, as July

>existing home inventory shot up to 9.6 months supply! The denials form an

>Orwellian backdrop where the system intends to deceive, to lie, and to

>misguide, so as to retain power and to keep the Middle Class

>impoverishment process intact. What is missing is the recognition that

>past denials of important concepts have almost all been incorrect. No

>learning seems to result in Wall Street, just ongoing compromise and deception.

>

>MERGER OF STATE & CORPORATION

>The diabolic yet accepted merger of state and corporate interests is

>preached as something beneficial, a movement to keep America strong, to

>meet foreign competition and even aggression. Nonsense! The merger invites

>fraud and extreme profiteering, if not roll the carpet to a totalitarian

>state. What extreme drivel. My experiment has resulted in one person out

>of 30 adequately citing what fascism is!!! The merger, called the

>Mussolini Fascist Business Model, is the penultimate in inefficiency and

>the ultimate framework for colossal theft with near zero prosecution. The

>Goldman Sachs reduction from 9% to 2% in the gasoline weight of the GSCI

>commodity index serves as best understandable evidence of such fraud. Did

>GoldSax short the gasoline futures before the decision to cut the weight

>by 7%? Of course, since if not, people would lose their jobs for a missed

>opportunity to profit.

>

>LATEST DENIALS ON RECESSION

>The permitted aristocratic fleecing inside financial markets is

>unspeakable, and surely extreme. The latest denials have been reformulated

>into key questions. IS THE USECONOMY HEADING INTO RECESSION ??? IS THE US

>FEDERAL RESERVE GROSSLY OUT OF TOUCH ??? The answers in my opinion are YES

>and YES. The USEconomy is furiously addicted to easy credit, which has

>been curtailed. The home equity easy access wellspring has run dry. What

>an easy call recession is! Look for more extreme statistical distortion to

>prevent an official admission of recession. New infusions of liquidity

>will in all likelihood assist the friends of the powerful groups, not the

>rank & file, not the run of the mill banks. Recent USFed injections went

>to the major banks, almost without exception. The US Federal Reserve is

>led by a university professor who has never run a business, never managed

>a financial account, never even worked in either, let alone worked in the

>private sector, but did serve as an apprentice on the Fed Board itself.

>Such does not instill confidence or adequately prepare for the job of

>leading the US Politburo of central planner look-alikes. Fortunately, his

>endless drivel about 'inflation expectations' has ended. Reality will pull

>him at his leg, maybe the short arm.

>

>NATIONALISM & FEAR

>Then we have a mania of fear and political fixation on terrorism. In my

>estimation, the USGovt, the USMilitary, and the shadowy groups who bear

>alphabet soup on unmarked lapels instill 1000 times as much fear in my

>life as any Moslem lunatic in a faraway land. When a youngster with a

>relatively undeveloped brain, it was an easy call for me to conclude the

>Warren Commission was a whitewash in the wake of the JFKennedy

>assassination. One can learn of unnatural deaths, with some investigation,

>for all who stood on the Dallas Grassy Knoll. A similar whitewash is my

>conclusion for the 911 Commission in the wake of the World Trade Center

>attack. A scad of 30-year Treasury Bonds issued before the 1971 departure

>from gold-backed USDollars were stored in the WTC vaults. And a scad of

>financial records pertaining to the JPMorgan & Enron case were stored in

>the third building. A scad of engineering professors have challenged the

>official reports, citing mere laws of physics. Are such engineers enemies

>of the state? The Nazis developed what was called Reich Physics back in

>their day, so that science would salute the fascist regime. Other

>scientific disciplines followed suit. Even Robert Fisk casts much doubt on

>the truth beyond the 911 events in The UK Independent editorial dated 25

>August 2007. He is their Middle East correspondent. He outlines numerous

>questionable facts and seeming contradictions. My view is simpler. A

>syndicate took control of the White House since 1982, marred by a certain

>event, which pursues a secret agenda and a clandestine business. Enough.

>

>When Habeas Corpus is suspended, when internment camps are completed on US

>soil, when torture is debated as justified, when pre-emptive attack is

>debated as justified, when confiscation of personal assets can be ordered

>in response to obstruction of a war whose cause was mostly faked, when

>unchecked executive decrees flow like a river, my fears are mainly

>directed within the 50 states and their federal commandants. This is an

>extreme situation leading potentially to a veiled military dictatorship.

>All precedent points to the Fascist Business Model leading in parallel to

>a fascist government regime. A lot of effort is going into this

>unpublicized plan, probably not an idle exercise. It seems extreme.

>

>INSTITUTIONAL DISTRUST

>The degree of public trust in US institutions is at rock bottom. The level

>of foreign distrust has never been greater, which likely will result in

>continued vengeance taken against both the USDollar and its traded vehicle

>the USTreasury Bond. That retribution could turn extreme. Over 70% of

>Americans do not trust their own Congress, the representatives who sit in

>their stead. They seem grotesquely compromised, bought and paid. The 2006

>midterm election mandate by the people has been ignored. The war

>commission report and its recommendations have been ignored. Over 70% of

>Americans do not trust their own Military to accurately and honestly

>report the status of the Iraqi War. Probably a higher proportion of

>Americans regard Wall Street as liars, parasites, con men, and fraud

>artists. The entire nation appears at extreme crossroads. As though the

>Untied States were not in enough trouble with systemic tremors, take a

>look south of the border for an even bigger nightmare unfolding. It is

>sure to spill over into the US back yard.

>

>RISING DISTRESS SOUTH OF THE BORDER

>South of the border is Mexico, whose fiscal wagon is quietly and

>dangerously careening down a hill, most assuredly over a precipice. This

>would constitute another extreme development. The decline of their giant

>oil field Cantarell, combined with the mismanagement of their PEMEX

>national oil industry, hampered by their corrupt powerful labor union,

>stymied by their compromised Parliament, these guarantee a monstrous

>fiscal problem in Mexico. The reduction in their FOREX trade surplus

>accelerates from greater gasoline import, a whiplash factor. This story

>has so far eluded the sleepy lapdog press, but not the oil industry. This

>story was covered in the August Hat Trick Letter in greater depth. My

>forecast is for Mexico to disintegrate into a failed state within two

>years, owing to its lost FOREX trade surplus and utter breakdown of law

>and order. Mexico City soon will be forced to turn to desperate measures.

>

>The Mexican Peso tumbled in July, and has continued lower in August. The

>financial conditions behind their FOREX revenues from their energy account

>are being revealed. The MexPeso has fallen from 9.25 to the 9.0 level,

>well below its 50-day moving average, without recovery. As the USDollar

>falters against the euro currency, the MexPeso does also. So the MexPeso

>has faltered even worse relative to world currencies. European exports

>rise in price to Mexicans. Currency markets sense trouble. The Mexican

>economy suffers from a significant decline in cash transfers (remittances)

>from workers in the US sending money home to families. This was addressed

>in my work as evidence of lost home construction jobs. The volume of money

>involved in remittances exceeds the total foreign direct investment in

>Mexico, an alarming data point, so not a small sum. This cramps consumer

>spending and small business investment, and leads to wider poverty. Count

>that as another contagion from the US housing crisis, of course denied.

>

>The situation in Mexico continues to deteriorate. As their nation falls

>further into outright chaos, three key questions arise: 1) What happens to

>the reliable supply of crude oil to the United States, even as Cantarell

>sees further decline? 2) What happens to the plans for implementation of

>the North American Alliance, the economic merger of the US, Canada, and

>Mexico? 3) What happens to foreign mining rights to Mexican properties,

>under possible threat of confiscation or hiked royalty demands? These are

>central questions addressed in the August Hat Trick Letter report.

>

>Violence has spread widely across Mexico, including murders of police

>officials in the northern regions. Even judges and foreign press reporters

>have been threatened. A splinter group from the Peoples Revolutionary Army

>claimed responsibility for the July 10th oil pipeline explosions in

>Guanajuato and Queretaro states. Other pipelines have been threatened.

>Armed battles in small city streets have erupted, without report in the

>debilitated compromised US media networks. Rival drug lords are engaged in

>three-way battles with the Mex Govt.

>

>A failed nation state is the likely outcome south of the US border. Such a

>failure has numerous criteria. Energy network attacks, growing poverty and

>inequality, inadequate government services, growing power of organized

>crime, corruption & desertion of police forces, assassination of judges

>and officials without consequences, and growing farmer bankruptcy are

>contributing to a failed system in Mexico. Needs of people, upheld laws,

>tax structures, allegiance to authority, and sense of urgency all seem to

>be in breakdown mode. The division between rich and poor is stark, and

>growing worse. Their tycoon Carlos Slim has accumulated three times the

>wealth that Rockefeller did a century ago, relative to respective national

>economy size. The failed state of Mexico will be evident from the top

>down, with origin the financial deterioration of its federal government.

>Gigantic federal deficits will be the next major story coming from Mexico,

>with associated disruption and chaos.

>

>UGLY DETAILS ON MEXICAN OIL INDUSTRY

>The supply of crude oil to the United States is substantial from Mexico,

>behind only Saudi Arabia and Canada. The Mexican energy picture is

>deteriorating. The elephant oil field Cantarell is in an established 15%

>annual decline, offset by inadequate expansion elsewhere. Some details are

>provided by the Mexico City business journal El Financiero. Current oil

>output is at 3.624 million barrels per day. Gasoline production follows

>the trend of oil production, with output down 56.4% at PEMEX refineries to

>463.2 thousand bbl/day. The shocking data point here is that their

>gasoline imports rose by 92.1% in June, versus last June 2006. No new

>gasoline refinery has been built in Mexico in over 20 years, not as bad as

>in the US, where no new refinery has been built in 35 years. The net

>financial impact is that Mexico earned $34.7 billion in FOREX reserves in

>2006 from oil export, but of that, $10 billion was spent on gasoline

>import, or 29% of the gain. The great boon from oil discovery in the 1970

>decade is coming to an end. Their oil exports in the first half of 2007

>stood at 1.718 million bbl/day. That compares to 1.907 mb/day in 1H2006,

>or 10% less. The decline is amplified by greater gasoline imports. The

>saving grace is the 40% reduction in natural gas imports. The Mexican

>trade surplus from energy is vanishing. Analysts expect it to be gone by

>2011. My forecast is sooner, due to disruption and a breakdown of order.

>The effect on their national politics will be severe, causing a failure of

>state, with a broad internal breakdown of order.

>

>THE IMBALANCED ALLIANCE

>The North American Alliance is intended (without debate, analysis, or

>vote) to share US bank sector might, broad technology expertise,

>pharmaceutical depth, augmented by military prowess WITH Canadian energy

>supply and mineral wealth WITH Mexican cheap labor, energy supply and

>mineral wealth, and a bonus of new port facilities. The hidden component

>is the supply of Mexican soldiers to fight in the US war machine. See

>data. The Alliance increasingly looks like having one horse (Canadian

>Dollar) pulling the FOREX stagecoach, with two lame horses from the United

>States and Mexico. Perhaps the US horse will be an image from a printing

>press that nobody will notice! The prospects for mining rights and

>constant royalties remain in debate, an uncertainty. Some conjecture and

>speculation is given in my August report.

>

>Back to top Reply to sender

 

******

Kraig and Shirley Carroll ... in the woods of SE Kentucky

http://www.thehavens.com/

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