All that the gargantuan Fed rate cuts have accomplished is to increase the asset spreads for lenders who are no longer lending due to raving fear of default by potentially insolvent borrowers and a complete lack of confidence in the entire interbank lending system and in the entire "financial engineering" products sector which is now viewed as if it were an unmapped minefield.  These terrified lenders, such as the commercial banks, as well as investment banks and brokerage houses that are outside the Federal Reserve system but that are benefiting from the rate cuts thanks to the Fed's ill-advised adventure into territory uncharted since the 1930's, are instead hoarding government securities and highly rated corporate bonds most of which have been producing negative returns based on official inflation much less actual inflation that is now over 12% and that is only two thirds of the way to catching up with an M3 of 18%.  How do you improve your balance sheets without the benefit of the fractional reserve banking multiplier that can only be achieved through bank lending which has been curtailed by the credit-crunch?  Do returns below the rate of inflation really improve balance sheets?  Who is fooling who here?  Despite these humongous and virtually unprecedented rate cuts, mortgage rates in the real world outside of the Illuminist interbank system have barely budged even for those with sterling credit.  For everyone else with not-so-sterling credit, which is most people, the rates have moved higher, along with underwriting standards, to take into account the increasing risk of default based on fraud-laced toxic waste.  The new FHA jumbo loan program is not working because the rates have climbed well above non-jumbo rates even for those with excellent credit.  And now the Fed's so-called "pause," which we can assure you will end before this year is closed out, has sent treasury rates back up.  

    While this has accounted for some of the recent support given to the dollar as foreigners and large institutional investors go for the higher rates on what they foolishly perceive to be higher quality paper, most of the support has been direct intervention by the PPT and its European and Asian counterparts that have been spiking the dollar out of the blue for several weeks now as part of their gold suppression activity.  Further, these higher rates on treasuries means that those who already owned treasuries got a big haircut, and guess who that might be.  That's right, the same banks who are insolvent and who just absorbed another big sock-it-to-me in the Treasury bond department, making them even more insolvent.  Wait until interest rates really get cranking as everything implodes, which will happen even if the Fed lowers the funds rate to 0%.  When the greatest bear market in bonds of all time gets under way on account of double digit interest rates brought on by long overdue risk reassessment and counter-hyperinflation strategy, the losses will dwarf the subprime problem.      

    Traders will be pining for the good old days of the subprime debacle.  Then it will be sheiks to the rescue again, but we suspect that rich oil exporters will want gold instead and will have to be dragged kicking and screaming to rescue the banks which will be all but vaporized by then as the Fed pumps M3 to infinity to keep them all alive.  Has anyone got a sub handy so we can cut those communication cables again?  Now they're threatening to remove those darn dollar pegs because we cut their cables - forget Iran, can we nuke Mecca without starting WWIII?

    And then of course there is the supposedly recovering US economy.  This is so preposterous that all we can say is that you just can't make this stuff up!  Bear in mind that oil has already been way, way north of $100 per barrel for the first five weeks of the second quarter.  How does that bode for corporate earnings and consumer spending?  In the meanwhile, food prices continue to soar, having doubled over the past three years according to a key UN food index, thereby causing food riots and rationing.  While all this transpires, wages are stagnant while inflation rampages at 12%, hundreds of thousands lose their jobs monthly, fixed and adjustable mortgage rates continue to rise and mortgage defaults double year over year while equity withdrawals from home ATM machines go the way of the dodo bird.  Of course, that wonderful stimulus package will save everything, right?  Has everyone started smoking mushrooms laced with crack?  Look at all the cutesy GDP hedonics, the ludicrous retail sales statistics pumped up by inflation and the rosy jobs report made that way by adding in hundreds of thousands of jobs that do not exist while many billions of taxpayer dollars are used to hire tens of thousands of totally unnecessary government employees to make the abysmal statistics look better and to gain votes for incumbents.   

    Consumer credit cards are now virtually all tapped out and defaults on their balances have accelerated.  To put the icing on the cake, US citizens will now get to import all the inflation that we have exported for decades to other countries through free trade, globalization, off-shoring, outsourcing and illegal immigration.  That is because lots of unhappy foreigners, who we have recently screwed out of billions with fraudulent sales of toxic waste and a "strong" dollar policy, are shunning our treasury bonds, and who can blame them as we continue with our "beggar-thy-neighbor" policies.  While sucking in all this new, wonderful inflation, workers lose pension and medical benefits as their municipalities and employers collapse and our national debt and trade deficits continue to grow to un-payable levels.  As all this is coming down, the dollar is taken to the cleaners as Wall Street's profligate fraud is nationalized by the private Fed with the blessing of our Treasury Department so we get to have some nice entertainment by doing a reenactment of 1920's Germany.  Yeah, we just turned the corner all right, head-on into the business end of an oncoming tractor-trailer loaded with steel girders and concrete from the controlled demolition of the Twin Towers.  Our economy will have to be removed from the ensuing wreckage with a spatula.  If you don't own gold, silver and/or their related assets, we suggest that your last investment be the purchase of a pancake flipper so that by your surviving relatives can remove and separate your body from the flattened vestiges of our economy.

    Large specs who go into the current stock market leveraged to the hilt deserve to be blasted into oblivion.  The only fundamentals in favor of non-resource stocks are lies about economic news, false statistics and PPT manipulations, and if you are not an insider, the PPT manipulations are not of much use because you are forced to guess at what their next move might be.  Take Goldman Sachs for instance, which is touting 200 oil with help from neocon, war-jawboning government officials so they can unload their long positions in oil without losing too much profit as they make plans to knock oil way down should gold and silver decide to get porky, which both did on Monday as gold crossed 880 and silver touched 17 again.  Once again, the yen strengthened while the COMEX was open and weakened after it closed.  Same old, same old.  Pessimism for carry traders while gold markets are open, optimism when the gold markets are closed but while stock markets are still open.  Message:  Use the liquidity we give you to buy stocks to suck in the dupes, not gold.  If you buy gold, you will be punished by super-yen and wimpy-oil.  Protective derivatives in the form of stock index puts, yen longs against both the dollar and the euro as well as oil shorts are a must to counter these potential cartel-orchestrated boondoggles that are intended to drain large spec liquidity and cause liquidations of metals positions.  If the cartel tries to put a squeeze on your protective derivatives, the solution is massive physical buying of gold and silver and stock de-leveraging into PPT provided strength which will force them to back off lest they send gold and silver into outer space and the stock market into the deepest depths of Mordor.  That is how you make your own game without playing their game.  Physical is the key, along with de-leveraging out of general stocks.

    We suspect that the hedgies are waiting for the dollar to stop spiking as exporting nations try to push their currencies down versus the dollar and as foreigners begin to think that it is safe to get back into the water full of Wall Street sharks as they tempt fate and purchase dollar-denominated assets, especially US treasuries, which despite their currently rising rates of return pay far less than actual inflation with the added bonus of potential default as all US financial fallout is about to be nationalized by the Fed and the Treasury to create levels of debt that will never be repaid.  What these "proud" owners of treasuries will gain when the Fed is forced to lower rates again to save ever more insolvent banks and financial institutions they will more than lose as the dollar which their assets are denominated in explodes and goes down in flames.  This is a no win situation, and once others realize this gold and silver will explode as they are your only protection under these inflationary circumstances.

    Silver lease rates for three months or less are still negative, meaning that the bullion banks will pay you to lease their silver.  So much for making profits on non-performing assets.  As a side note, when oil is sold off to hit gold and silver, a lot of those proceeds will be transferred into precious metals, thereby softening the blow.  As a further side note, only three months ago, the USDX was at about 77 and gold closed at 906.40.  Tuesday the USDX was about 73, with gold closing at 876.40, even with the Fed funds rate being a full percentage point lower and the chances of a rate increase being slim to none.  We are left stunned and incredulous by the lack of public outrage at these despicable, suppressive manipulations.     

    Today Wall Street cannot exist without a strong Fed reflationary policy. Our economic and financial problems are tied to the excesses in Wall Street and banking over the past several years. As we have often said deflation has to be smothered at any cost. We currently see the deflationary fallout in housing and in the ongoing credit crisis. On the other hand we see M3 increasing at close to 18%, a wideopen Fed discount window, massive auction lending by the Fed and massive loans by the Fed to other select central banks. You could call this push-push economics and finance. The media, particularly the financial media, portrays this as normal. Our economy and the world economy are being distorted by the practice of financial arbitrage capitalism. As we have often said the system is dysfunctional and unsustainable. All the masters of the universe are doing is adding to the existing groundwork for the coming depression. Incidentally, they are well aware of that and could care less.